Insurance stocks were among the biggest decliners in the Hong Kong market. At the time of writing, CHINA LIFE (02628) fell 3.81% to HK$33.82, while NCI (01336) dropped 3.6% to HK$60.2, and CPIC (02601) declined 3.14% to HK$38.24.

Market speculation suggests the government is planning to issue approximately 200 billion yuan in special treasury bonds to inject capital into some major insurance firms, with state-owned insurers like CHINA LIFE and PICC likely to be recipients.

If realized, this would mark the first instance of China utilizing special treasury bond issuance to provide capital to insurance companies, and the related plan could be announced as early as the first quarter of this year.

Industrial Securities indicated that leading state-owned insurers indeed have a need for capital replenishment, noting that the 750-day curve used in the solvency calculation framework for provisioning carries inherent lagging effects.

Even if interest rates remain at current levels in the coming years, the 750-day curve is projected to continue its downward trajectory, leading to a decline in solvency ratios; furthermore, the increased allocation to equities by insurers in recent years is expected to place additional strain on already tight solvency levels.

Overall, the insurance industry continues to face pressure from constrained solvency capacity in the foreseeable future.

From a regulatory standpoint, the potential capital injection may be aimed at mitigating tail risks within the sector.