China Insurance: Summer Series: Market polarization risk rising as smaller players face capital pressure

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China Insurance: Summer Series: Market polarization risk rising as smaller players face capital pressure

erging, and Bank of Ningbo is our preferred name with better growth potential. J.P. Morgan Securities (China) Company Limited

• Market structure. China’s insurance is an oligopolistic market at the top but Katherine Lei

fragmented below, with top 5 insurers holding 45%/68% of life/non-life (852) 2800-8552

katherine.lei@jpmorgan.com

premiums. While GDP per capita above US$10,000 supports the long-term J.P. Morgan Securities (Asia Pacific) Limited/ J.P.

penetration story, insurance remains highly capital intensive, requiring upfront Morgan Broking (Hong Kong) Limited

spending on distribution, customer acquisition, claims infrastructure and risk

management. Ongoing bancassurance channel reforms disproportionately

favor large-cap insurers with better client access, hindering SMid insurers from

generating organic earnings. Scale, therefore, becomes the key differentiator,

raising the question of how many players may survive in the foreseeable future.

• Life insurers. The overview of 75 life insurers shows a widening gap between

large caps and SMids in capital efficiency, core solvency buffers and regulatory

risk ratings. Listed insurers continue to maintain core solvency >100%, while

17 unlisted insurers are below 100%, including 4 insurers <70% (vs. min.:

50%), the threshold that might potentially trigger capital calls. Many SMid life

insurers face weaker brand recognition, sluggish new sales growth and rising

capital risks. For most, market capital appears reluctant to flow into small

players on a sustainable basis, exerting further pressure for business model

retrenchment, as weak returns fail to cover long-term capital costs. We expect