Lao Man (老蛮) is a Chinese writer who publishes on economic topics. He recently published an article warning that Chinese insurance companies are another time bomb that may explode soon.
He gave the following data (in Billions of Yuan):
- Year Investment Income Payout Net
- 2018 7,105 12,298 -5,193
- 2019 9,152 12,984 -3,832
- 2020 11,729 13,907 -2,178
- 2021 12,775 15,609 -2,834
- 2022 4,640 15,485 -10,845
- 2023 (Jan – Jun) 3,194 9,151 -5,957
He pointed out that many insurance companies have a cash pool for investment, and that they use their investment returns to cover part of their insurance payouts (with any gap between investment income and insurance payouts being made up by e.g. premiums charged to the insured).
It was a good sign that the gap between the investment income and insurance payouts was shrinking from 2018 to 2020. The gap held steady in 2021, but it shot up dramatically in 2022 and has remained high during the first half of 2023.
The reason is that insurance companies can no longer generate high returns on their investments due to China’s economic downslide. This will inevitably eat into the insurance companies’ cash pools. According to the article, insurers will be forced to take in more customers and use the new customers’ money to pay for the existing customers, essentially running a Ponzi scheme.
Source: China News, August 15, 2023