On December 3, the National Financial Supervision and Administration Bureau issued a reply regarding the issuance of capital supplementary bonds by China Life Insurance Company Limited (hereinafter referred to as "China Life"), agreeing to the company's issuance of 10-year redeemable capital supplementary bonds in the national interbank bond market, with an issuance scale not exceeding 35 billion yuan (inclusive).

According to statistics from reporters at the Financial Associated Press, since the beginning of this year, a total of 11 insurance companies, including China Life, Lianan Life, and New China Life Insurance, have supplemented their capital through the issuance of capital supplementary bonds or perpetual bonds, with a total bond issuance scale reaching 95.6 billion yuan.

Chen Hui, director of the China Actuarial Technology Laboratory at Central University of Finance and Economics, stated that after the implementation of the second phase of the solvency regulatory framework, insurers generally face significant capital supplementary demands, and with obstacles to shareholder capital increase, low interest rates, and high demand for replacing old debts, insurance companies have increased their bond issuance enthusiasm.

It is worth noting that a considerable number of small and medium-sized insurers find it difficult to issue bonds in the open market due to low ratings, leading to significantly restricted financing capabilities. Industry insiders suggest dynamically adjusting solvency standards to ensure they are aligned with the developmental stage of the industry.

China Life has been approved to issue capital supplementary bonds not exceeding 35 billion yuan, with the proceeds intended for supplementary Tier 1 capital.

After a 5-year hiatus, China Life Insurance has once again been approved to issue up to 35 billion yuan in capital supplementary bonds.

On December 3, the National Financial Supervision and Administration Bureau issued a reply regarding the issuance of capital supplementary bonds by China Life, agreeing to the company's issuance of 10-year redeemable capital supplementary bonds in the national interbank bond market, with an issuance scale not exceeding 35 billion yuan.

As early as November 22, 2023, China Life Insurance stated in its announcement that 'the company plans to issue domestic capital replenishment bonds in one or more installments domestically, with a total amount not exceeding 35 billion yuan, depending on the market conditions. The funds raised from these domestic capital replenishment bonds will be used to supplement the company's subsidiary Tier 1 capital and support the continuous and stable development of its business.'

It is noteworthy that before the additional issuance of new bonds was approved, China Life Insurance fully redeemed the 35 billion yuan capital replenishment bonds issued in 2019 on March 22, 2024.

A private equity fund bonds trader told the reporter from the financial alliance that this may be due to insurance companies considering lowering the financing costs of bond issuance, and it cannot be ruled out that these insurance companies intend to use low-interest new capital supplements to replace high-interest capital supplements.

In his view, if only redeemed without the additional issuance of new bonds, this seems to be contrary to the current trend where many companies are urgently in need of capital replenishment. Specifically, after the implementation of the Phase II of the Second Generation Payment Project, the solvency adequacy ratio of most insurance companies has declined, facing varying degrees of pressure for capital replenishment.

From the perspective of china life insurance, in recent years, the capital markets have been volatile, and some investment assets of the company are facing certain impairment losses, while the investment yield has declined, bringing some pressure to the company's solvency management.

Data shows that as of June 30, 2024, China Life Insurance's core solvency adequacy ratio was 151.90%, and its comprehensive solvency adequacy ratio was 205.23%. Compared to a 10.18 percentage point decrease in the core solvency adequacy ratio to 253.7% at the end of the fourth quarter of 2021, the comprehensive solvency adequacy ratio dropped by 57.18 percentage points to 262.41%.

The bond issuance scale of the insurance industry this year is nearly 100 billion, and some insurance companies are still facing financing restrictions due to low ratings.

In the diversification strategy of capital supplementation, issuing bonds is currently an important way for insurance companies to raise funds.

Wind data shows that since the beginning of this year, 11 insurance companies including china life insurance, lianan life insurance, new china life insurance, ping an property insurance, taibao life insurance, china british life insurance, taikang life insurance, and bank of china samsung life insurance have issued bonds to supplement capital, with a total bond issuance scale of 95.6 billion yuan.

Among them, taibao life insurance, taikang life insurance, and china british life insurance issued perpetual bonds with scales of 8 billion yuan, 9 billion yuan, and 3 billion yuan respectively, while other insurance institutions issued bonds for capital supplementation.

In contrast to the rising scale of bond issuance, the rates of the capital supplement bonds issued this year are all in the '2' range, with the highest issuance rate being 2.9% and the lowest being 2.15%, showing a year-on-year decline.

Among them, the '24 taibao life insurance perpetual bond 01' has an issuance coupon rate of 2.38%, which sharply contrasts with the 3.5% coupon rate of the 12 billion yuan bond issued by taibao life insurance at the end of 2023.

'24 lianan life insurance capital supplement bond 03' has an issuance coupon rate of 2.59%. It is reported that lianan life insurance has cumulatively issued three phases of capital supplement bonds this year, totaling 3 billion yuan, with coupon rates of the three bonds being 2.75%, 2.78%, and 2.59%, showing a downward trend.

Regarding the overall decline in the coupon rates of bonds issued by insurance companies, professor guo zhenhua, director of the insurance department at shanghai university of international business and economics, told the financial alliance news reporter that the pricing of bond coupon rates by insurance companies is based on market interest rates. As market interest rates decline, the rates of bonds issued by insurance companies will also decrease, mainly following the trend of changes in the market's risk-free interest rates. The declining bond issuance rates also indicate that the financing costs for insurance companies are reducing.

It is worth noting that although insurance companies are licensed institutions and the bond default rate is low, it is not easy for insurance companies with medium to low ratings to rank among the higher ratings, which significantly increases financing difficulty.

Industry insiders say: 'Currently, insurance companies that can issue bonds in the public market have relatively good qualifications. Many companies find it difficult to issue bonds in the public market due to low ratings and can only finance through non-public channels, hoping that the industry can dynamically adjust solvency standards in the future to ensure they are compatible with the development stage of the industry.'