China Pacific Insurance and New China Life: Exposure to Vanke Debt Appears Manageable

According to media reports, China Pacific Insurance Co., New China Life Insurance, and other Chinese life insurers were recently in talks with property developer Vanke to restructure their debt investments. These debt investments are long-term nonstandard investments that usually last for 6-10 years. We believe the short-term financial impacts to CPIC and NCI are limited, since these investments are booked as financial assets at amortized cost and not marked to market. It was reported that these investments have yet to reach maturity, but insurers can exercise their early redemption rights under certain circumstances, including a credit rating downgrade. Moody’s downgraded Vanke’s credit rating on March 11. These insurers were reported to have exposure of several billions each. If we assume CPIC’s and NCI’s exposure is about CNY 5 billion each, this represents 0.2% and 0.4% of their respective total investment assets, or 2% and 4% of shareholders’ equity as of mid-2023. As such, even in the bear case where we assume 100% write-offs, CPIC’s and NCI’s core solvency ratios will decline by 3 and 5 percentage points to 157% and 142%, respectively, but will still be well above the minimum regulatory requirement of 50%.