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on the evening of september 19, china life insurance company issued an announcement stating that the company had recently received a reply from the state financial regulatory administration, agreeing to its issuance of 10-year redeemable capital supplement bonds in the national interbank bond market, with an issuance size not exceeding 35 billion yuan (inclusive).

industry insiders said that insurance company capital supplement bonds are the main type of bonds issued by insurance companies, with high credit ratings and no history of default. under the current asset shortage, although the yield of insurance capital supplement bonds is also in a downward channel, it may have a certain cost-effectiveness compared with the "eryong bonds" with the same maturity rating.

the funds raised are intended to be used to supplement the company's subsidiary tier 1 capital

in december 2023, china life insurance (sh601628, share price 34.99 yuan, market value 988.9 billion yuan) reviewed and approved the "proposal on the company's issuance of capital supplementary bonds". china life insurance wrote in the proposal that in order to cope with potential capital fluctuation risks and maintain stable and sufficient solvency, it is now proposed to the shareholders' meeting for review and approval that the company, depending on solvency and market conditions, issue a total of no more than rmb 35 billion of capital supplementary bonds in one or more installments in china. the funds raised from such domestic capital supplementary bonds will be used to supplement the company's subsidiary tier-one capital in accordance with applicable laws and the approval of regulatory authorities to support the continued steady development of the business.

on september 19, china life insurance announced that the regulator had agreed to issue 10-year redeemable capital supplement bonds in the national interbank bond market, with an issuance scale of no more than 35 billion yuan. china life insurance also received the "decision of the people's bank of china on granting administrative license" earlier, and the people's bank of china agreed to its issuance of capital supplement bonds in the national interbank bond market.

"insurance company capital supplement bonds are a type of financial bonds. the issuance period and issuance types can be flexibly designed according to the issuer's financing needs. they are mainly used to supplement the capital of insurance companies and improve their risk resistance." said an analysis by china fortune securities.

it is reported that the capital supplement bonds of insurance companies currently adopt a 5+5-year issuance period, which includes special terms such as subordinated repayment order and conditional redemption rights. the interest rate "jump" is basically set at 100bps to meet the requirements of capital saving by including recognized liabilities. most bonds also stipulate that the principal or interest should be deferred when the solvency adequacy ratio is not met.

from the content of china life's previous proposal, it can be seen that the purpose of china life's issuance of capital bonds this time is also inextricably linked to stabilizing solvency. data shows that as of june 30, 2024, china life's core solvency ratio is 151.90%, and its comprehensive solvency ratio is 205.23%, down 10.18 percentage points from the core solvency ratio of 253.7% at the end of the fourth quarter of 2021, and down 57.18 percentage points from the comprehensive solvency ratio of 262.41%.

many insurance companies have issued capital supplement bonds or perpetual bonds this year.

the reporter of daily economic news noted that capital increase and bond issuance have always been the two major ways for insurance companies to supplement capital. in addition to china life, seven insurance companies, including sino-british life, taikang life, ping an property & casualty insurance, new china life, china taiping life, li an life, and bank of china samsung life, have issued capital supplement bonds or perpetual bonds this year, with a total bond issuance of about 44.8 billion yuan.

specifically, ping an property & casualty insurance and new china life insurance both issued bonds worth 10 billion yuan; taikang life insurance and china tai ping life insurance followed closely behind, with bond issuance scales of 9 billion yuan and 8 billion yuan respectively; china anglo life insurance issued two perpetual bonds totaling 3 billion yuan; lian life insurance issued three capital supplement bonds totaling 3 billion yuan; bank of china samsung life insurance's bond issuance scale did not exceed 1.8 billion yuan.

in terms of the way of issuing bonds, there are mainly two types: capital supplement bonds and perpetual bonds. cicc fixed income analysis believes that "perpetual bonds of insurance companies currently adopt a 5+n-year issuance period, and also have special terms such as subordinated repayment order and conditional redemption rights, but do not contain interest rate jump mechanism, and will be forced to cancel interest payments when the solvency adequacy ratio does not meet the standard. even if the solvency adequacy ratio meets the standard, the issuer can choose to defer interest payments. in addition, perpetual bonds of insurance companies contain loss absorption clauses for write-downs or conversions."

cicc fixed income pointed out that compared with insurance company capital supplement bonds, insurance company perpetual bonds have a later repayment order, no maturity date, must not contain an interest rate jump mechanism, will be forced to cancel interest payments when the solvency adequacy ratio does not meet the standards, can also defer interest payments by itself when the solvency adequacy ratio meets the standards, and contain write-down or conversion clauses, and their subordinate attributes are obviously stronger.

despite this, in the eyes of analytical institutions, insurance companies' capital replenishment bonds still have certain investment value. cicc fixed income said that driven by the "asset shortage", the yield and spread of low-rated insurance companies' capital replenishment bonds have reached historical lows, and the highest spread percentile of the 5-year aa+ is less than the 10th percentile. of course, due to changes in supply and demand and liquidity, historical levels are not absolutely referenceable.

considering that the absolute yield of 5-year aa+ and aa insurance subordinated bonds is still attractive, and the overall credit risk is controllable, coupled with the overall limited supply, it is difficult to lead to a widening of the spread, so it is a good investment product.several insurance perpetual bonds issued at the end of last year still have a spread of 10 to 15 basis points compared to subordinated bonds, and can also be allocated moderately.

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