China's large insurance companies may welcome a capital injection via special treasury bonds for the first time. According to media reports, Chinese large insurance companies are set to receive a 200 billion yuan capital injection from special treasury bonds, with the relevant plan potentially announced as early as the first quarter of this year. If confirmed and implemented, this would mark the first time China has used special treasury bond issuance to inject capital into insurance firms. In fact, as early as the State Council Information Office press conference on May 7, 2025, Li Yunze, head of the National Financial Regulatory Administration (NFRA), indicated that "the NFRA is guiding the industry to deepen cost reduction, efficiency improvement, and sustainable development, further solidifying the foundation, improving capital replenishment mechanisms. The capital replenishment work for large commercial banks is being accelerated, capital replenishment for large insurance groups has been put on the agenda, and various regions are also replenishing capital for small and medium-sized financial institutions through multiple channels in an orderly manner. These measures will further enhance the resilience of the financial system and its ability to serve high-quality development." In 2025, the four major state-owned banks had already received capital injections via special treasury bonds. Now, market rumors about special treasury bonds injecting capital into large insurance institutions do not seem surprising. The gate for special treasury bonds is opening. Some foreign media reports suggest that China's 200 billion yuan special treasury bonds will be used to inject capital into leading insurance companies, including state-owned insurers such as China Life Insurance, People's Insurance Company (Group) of China (PICC), and China Taiping. Industry insiders suggest that large insurers may shoulder more responsibility in the future to assist in disposing of risks from weaker peers, and regulators have been consistently promoting the entry of medium- to long-term funds, including insurance capital, into the market. Indeed, China already issued 500 billion yuan in special treasury bonds in 2025 to inject capital into the four major state-owned banks: Bank of China, China Construction Bank, Bank of Communications, and China Postal Savings Bank. "The Ministry of Finance stated that 'supporting relevant large state-owned commercial banks to replenish their core tier-1 capital through the issuance of special treasury bonds is conducive to further consolidating and enhancing the banks' robust operational capabilities, promoting high-quality development of the banks, creating greater value and delivering long-term stable returns for investors, and enabling the banks to better play their role as the main force in serving the real economy, providing strong support for the stable and long-term development of the national economy.'" Similarly, if large insurance companies also receive capital injections via special treasury bonds, it will effectively "replenish their blood," enabling their own high-quality and sustainable development, and allowing them to contribute effectively to "stabilizing the economy." Regarding the pricing of the private placement, Zhongtai Securities believes that the pace and method of this capital injection into state-owned commercial insurance central SOEs are similar to the A-share private placements of the four major state-owned banks in 2025. The private placement price will mainly reference the A-share market price; China Taiping is only listed in Hong Kong and is currently still trading at an expected price below net asset value. If follow-up capital injections have little impact on the PB-ROE valuation framework, the impact on H-shares would be relatively small. How significant is the impact of the capital injection into state-owned commercial insurance central SOEs? Zhongtai Securities anticipates that China Life Insurance, PICC, and China Taiping, which are directly controlled by the Ministry of Finance, are expected to be the beneficiaries of this round of injection. The scale of this round's injection (totaling approximately 200 billion yuan) is estimated based on the net asset value in the group consolidated financial statements under the old standards in the 2025 mid-term solvency reports and the overall proportion of net assets attributable to the parent company under the new standards as of mid-2025. It is estimated that this injection scale will account for about 16.5% of the net assets attributable to the parent company of the aforementioned three central SOE insurers at the end of 2026 (specifically, 13.5% for China Life, 20.1% for PICC, and 25.8% for China Taiping), collectively boosting the solvency ratio by approximately 23 basis points (specifically, 19.2 bps for China Life, 34.6 bps for PICC, and 20.3 bps for China Taiping). Solvency is under pressure. In fact, at this stage, there is a necessity for the state to inject capital into large insurance companies. Firstly, the overall solvency of the industry is on a downward trend. The latest solvency data disclosed by the NFRA shows that as of the end of the third quarter of 2025, the comprehensive solvency adequacy ratio and core solvency adequacy ratio of insurance companies were 186.3% and 134.3% respectively, down 18.2 basis points and 13.4 basis points from the end of the second quarter of 2025. Regarding the decline in insurance companies' solvency adequacy ratios, Huayuan Securities attributes it to factors such as increased capital occupation for equity investments and pressures on both assets and liabilities. "With the rebound in the equity market in Q3 2025, insurers significantly increased their allocation to equity assets like stocks and securities investment funds to enhance returns. However, under the new regulations, equity assets carry higher risk factors, pushing up the scale of minimum capital requirement. Furthermore, life insurers, due to their long business duration and high leverage, are more affected than property insurers. Pressures from both the asset and liability sides formed a two-way squeeze: rising interest rates led to a decline in the value of fixed-income assets, reducing actual capital, while the continuously declining 750-day moving average discount rate on the liability side increased the scale of insurance contract reserves, further lowering the level of actual capital," Huayuan Securities pointed out. 2025 also marks the final year of the transition period for the second phase of "China Risk-Oriented Solvency System" (C-ROSS). To alleviate solvency concerns, insurers have employed a three-pronged approach: capital increases, bond issuance, and rights issues. Ping An Insurance and China Pacific Insurance innovatively issued zero-coupon convertible bonds, creating a new model for insurers to "replenish blood." In terms of increasing registered capital, at least 20 insurers disclosed announcements regarding changes in registered capital in 2025. Although small and medium-sized insurers were the "main force" in capital increases, large insurers were also involved. For instance, Ping An Life Insurance made a substantial capital increase of approximately 20 billion yuan. In April 2025, Ping An Life Insurance announced that all its shareholders planned to inject approximately 19.999 billion yuan into the company. After this capital increase, Ping An Life's registered capital would rise from 33.8 billion yuan to approximately 36 billion yuan. Ping An Life stated that this capital increase was primarily to accelerate business development, take multiple measures to enhance solvency levels, establish a healthy and sustainable development model, and further strengthen capital strength. "Leading state-owned insurance companies indeed have a need to replenish capital. There is a certain lag in the 750-day curve used to calculate reserves within the solvency system. Even if interest rates remain at current levels in the coming years, the 750-day curve is expected to continue declining, leading to a decrease in solvency. Additionally, the increased allocation to equities by insurers in recent years will put further pressure on already tight solvency. Overall, the insurance industry still faces solvency pressure in the future," Industrial Securities stated. Resolving tail risks. From a regulatory perspective, increasing the capital of large insurers also helps resolve tail risks within the industry. In September 2024, the State Council issued the "Several Opinions on Strengthening Supervision, Preventing Risks, and Promoting the High-Quality Development of the Insurance Industry." The document, comprising 10 articles, is referred to within the industry as the new "State Ten Articles" for insurance. The new insurance "State Ten Articles" explicitly calls for powerful, orderly, and effective prevention and resolution of risks in the insurance industry. Subsequently, the NFRA also issued the "Action Plan for Strengthening Supervision, Preventing Risks, Promoting Reform, and Driving the High-Quality Development of the Property Insurance Industry," proposing to encourage mergers and reorganizations among property insurers, support qualified institutions in "relocating to resolve risks," and use market-oriented and rule-of-law methods to clear out risks. For property insurance institutions with significant risks and lacking sustainable operation capabilities, market exit procedures will be carried out according to law, with relevant supporting policies being studied. Based on the published Q3 2025 solvency reports of insurance companies, four insurers still failed to meet solvency standards, including one life insurer (Huahui Life Insurance) and three property insurers (Anhua Agricultural Insurance, Qianhai Property Insurance, Asia Pacific Property Insurance). The comprehensive risk ratings of these companies were all Class C. According to regulatory provisions, solvency supervision indicators include the core solvency adequacy ratio, comprehensive solvency adequacy ratio, and comprehensive risk rating. An insurance company is deemed to meet solvency standards only if it simultaneously satisfies all three criteria: a core solvency adequacy ratio of no less than 50%, a comprehensive solvency adequacy ratio of no less than 100%, and a comprehensive risk rating of Class B or above. Therefore, Industrial Securities believes that if the policy is implemented, part of this capital injection could be used to promote leading state-owned insurers' participation in industry consolidation. While they might face short-term pressure from managing problematic institutions, the long-term effect would be a significant optimization of the competitive landscape. Viewed in isolation, the capital injection itself directly replenishes the core capital of leading insurers, alleviates solvency pressure, and is beneficial for their business expansion and investment, constituting a positive signal. Overall, industry risk resolution and the enhanced capital strength of leading players will resonate. After supply-side optimization, customer expectations are expected to further concentrate towards leading insurers, firmly supporting a positive long-term outlook for the sector. Insurance capital's major asset allocation is primarily focused on fixed income, which determines the sensitivity of insurers' investment side to the interest rate environment. In a low-interest-rate environment, insurers' interest spread margins are compressed, thereby putting pressure on profitability. Against the backdrop of a persistent low-interest-rate environment, the actual capital of insurance companies decreases while the minimum capital requirement increases, leading to a decline in the solvency adequacy ratio. Over the past period, encouraged by policymakers and regulators, the enthusiasm for insurance capital entering the market has increased, also causing some potential consumption of capital. If the capital injection into large insurance companies via special treasury bonds materializes, it will effectively enhance the capital strength of these leading insurers, optimize the structure of their liability side, and guide insurance capital to serve national strategies.