According to the Wall Street Journal, Chinese regulators are worried domestic insurers are struggling more and more to make payments to policyholders. So they plan to help insurers tap into the off-shore yuan market for cash.Insurers depend on bank deposits and securities investments to pay off claims. Since the stock market has been lagging this year (down 16%, to be precise) they’re coming up short on cash. Add to that a rapidly expanding demand because of business development, and you’ve got another bomb-shell on your hands.
Chinese insurers are supposed to keep their solvency ratios at 150%.
“If the fiscal crises in Europe and the U.S. continue to deepen, capital markets will continue to keep falling. As such, (Chinese) insurers will face greater pressure in preventing their solvency ratios from dropping,” said vice chairman of the China Insurance Regulatory Commission, Chen Wenhui at a forum in Beijing.
The government wants to develop Hong Kong as an offshore yuan centre anyway, so their plan is to solve this problem by issuing insurance bonds there. Standard & Poors has said that they’ll need to raise $17.25 billion (110 billion yuan) in the next three years to stay on pace with growth.
China’s bond market is messy as is. For example, local government financing platforms are issuing bonds to cover infrastructure projects that sometimes take a while to become profitable, if they do at all. If it doesn’t work out, the government will just re-package local debt as corporate debt, so things can be hard to track.