In the first half of the year, insurance companies issued bonds worth over 32 billion yuan, down 35.3% year over year.

By Yang Xiaohan, Staff Reporter

Wind data shows that in the first half of this year, insurance companies issued 16 bonds for capital replenishment, with a total issuance size of 32.07 billion yuan, down 35.3% year over year. Of that, perpetual bonds accounted for about six tenths of the issuance.

Interviewees said that in the future, insurers’ bond issuance is expected to feature “targeted capital replenishment” and proactive optimization. At the same time, insurers need to strengthen their “capital-creation” ability through measures such as optimizing business structures and improving operational efficiency, and explore diverse ways to replenish capital.

A “small in size, many in number” trend

In the first half of this year, bonds issued by insurers for capital replenishment showed a “small in size, many in number” pattern. Based on the data, the total issuance scale of insurers’ bonds fell 35.3% year over year, while the number of bonds issued increased by 5.

Compared with the same period last year, the issuance size of each bond this first half has declined. For example, the bonds with the largest issuance size this year are “26 Yangguang Life Capital Replenishment Bond 01” and “26 CITIC Prudential Life Perpetual Bond 01,” each at 5 billion yuan. In the same period last year, the bond with the largest issuance size was “25 Ping An Life Perpetual Bond 01,” at 13 billion yuan; additionally, there were 3 bonds with issuance sizes above 5 billion yuan.

In response, Yang Fan, general manager of Beijing Pai Pai Wang Insurance Brokerage Co., Ltd., told Securities Daily reporter that, on the one hand, as regulation continues to deepen, different insurers choose to issue bonds in batches and at smaller scales based on their own capital consumption cadence, business development plans, and solvency capability levels, to improve financing flexibility and reduce financing costs. On the other hand, as the industry’s overall capital strength improves, demand for large-scale centralized capital replenishment has weakened. More institutions adopt a “supplement as needed, issue on a rolling basis” approach to optimize their capital structure. Therefore, the number of issuances increases while single-bond size declines, reflecting more refined capital management and more rational financing strategies among insurers.

The low interest-rate environment has also changed insurers’ financing strategies. Jiang Han, a senior research fellow at PanGu Think Tank (Beijing) Information Consulting Co., Ltd., told Securities Daily reporter that currently the bond-issuance cost is at a historical low. Insurers are more inclined toward “small amounts, high frequency” issuances to lock in low-cost long-term capital.

Perpetual bond issuance becomes normalized

In the first half of this year, another feature of insurers’ bond issuance was the normalization of perpetual bonds.

Specifically, of the 16 bonds issued by insurers for capital replenishment in the first half of this year, 8 were perpetual bonds, with a total issuance size of 19.34 billion yuan, accounting for 60.3% of the total amount of insurers’ bond issuance in the first half of the year.

Perpetual bonds are “capital bonds without a fixed term.” They refer to capital replenishment bonds issued by insurers with no fixed maturity, containing write-down or conversion clauses, and capable of absorbing losses and meeting solvency regulatory requirements both in ongoing operations and in bankruptcy liquidation, thereby replenishing capital.

Why has the issuance of perpetual bonds by insurers increased in recent years? Yang Fan believes that compared with traditional capital replenishment bonds, perpetual bonds have a longer term, enabling better matching with the long-term liability characteristics of insurance funds. Subject to meeting regulatory requirements, they can be counted as core capital, helping to optimize the capital structure, strengthen the ability to operate on a going-concern basis, and improve the stability of capital replenishment.

Yang Fan also said that the financing cost of perpetual bonds is usually relatively higher, requiring higher demands on the issuing entity’s credit quality, profitability, and market recognition. At the same time, they face management pressures arising from factors such as interest-rate volatility and future redemption arrangements. Therefore, perpetual bonds are more suitable for large and mid-sized insurance institutions with strong capital strength and relatively stable operations.

Looking ahead to insurers’ bond-issuance trends, Jiang Han believes that in the future there will be a new normal of “overall contraction of total volume and targeted capital replenishment,” with the industry shifting from passive defense to proactive capital optimization.

As for how to strengthen endogenous “capital-creation” capacity, Jiang Han said that insurers can reduce short-term savings-type business with high capital consumption, develop long-term premium-paying businesses, and improve operational efficiency, and use retained profits to achieve self-accumulation of capital. Meanwhile, insurers should explore diversified paths for capital replenishment and capital management. In addition to issuing bonds domestically and shareholders’ capital injections, they can also, subject to regulatory requirements and their own qualification conditions, study ways such as capital conversion from capital reserve funds into registered capital and overseas financing instruments, in order to build a more robust capital replenishment system.

(Editor: Qian Xiaorui)

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