When the insurance industry's "safety myth" was shattered by a default announcement, the market finally realized that financial market risks never disappear due to industry reputation.

Recently, Tian An Property Insurance announced in a statement that it could not repay its 5.3 billion yuan capital supplementary bond "15 Tian An Property Insurance Bond" on schedule, marking the first bond default in China's insurance industry history.

From the collapse of the "Tomorrow Group" capital empire to operational stagnation under regulatory takeover; from hopes of rebirth through business transfer to the helpless outcome of suspended bonds. This default not only reveals the survival predicament of one insurance company, but also reflects the collective struggle of the entire small and medium-sized insurance group between capital supplementation, governance structure, and operational transformation. When the belief in rigid payment was broken, the bell of risk pricing truly rang for the industry.

Qiu Jian, chief insurance researcher at China Insurance Research Institute, stated that this default broke the "rigid payment" belief in the insurance capital bond market for the first time, marking China's insurance capital bond market entering a new stage of "explicit credit risk." The market will no longer assume by default that insurance company bonds have implicit guarantee attributes. Investors will pay more attention to the fundamentals of issuing entities, such as solvency, corporate governance, and shareholder backgrounds, promoting more refined and differentiated pricing of credit spreads.

**First Bond Default in Insurance Industry**

Tian An Property Insurance's bond default was not a sudden occurrence. Looking back to 2015, Tian An Property Insurance issued a 5.3 billion yuan, 10-year capital supplementary bond to supplement capital. The coupon rate for the first five years was 5.97%, and if not redeemed at the end of the fifth year, the rate would jump by 100 basis points to 6.97% for the following five years. This design was intended to enhance bond flexibility but later became a foreshadowing of risk accumulation.

In 2020, Tian An Property Insurance was taken over by regulatory authorities due to "Tomorrow Group" risk exposure. In the same year, it announced it would not exercise the redemption right, and the bond entered an "interest accrual suspension" state with interest payments halted. During the five-year suspension period, company operations nearly stagnated, business growth was weak, and internal profits could not cover debt costs.

In 2024, Tian An Property Insurance's risk disposal reached a critical turning point. The newly established Shenneng Property Insurance took over its insurance business asset package, but the "15 Tian An Property Insurance Bond" was excluded from the transfer scope. This arrangement completely shattered bondholders' hopes of achieving payment through business succession.

According to bond issuance terms, the issuer can only redeem after ensuring that post-payment of principal and interest, the solvency adequacy ratio remains no less than 100% and has the ability to settle other liabilities. After final assessment, Tian An Property Insurance confirmed it could not meet this condition and chose to default.

This default event appears to be a liquidity crisis on the surface but is actually a concentrated outbreak of multiple problems including corporate governance failure, low operational efficiency, and deteriorating asset quality. Tian An Property Insurance has long relied on low-profit property insurance business, lacking high value-added insurance products. Investment returns were dragged down by declining interest rates, and high marketing costs resulted in net asset returns consistently below healthy industry levels.

More alarmingly, Tian An Property Insurance is not an isolated case. Tian An Life Insurance, which was taken over in the same batch, has a 2 billion yuan capital supplementary bond due in December 2025, with the market equally questioning its payment ability. Additionally, multiple small and medium-sized insurers including Chang'an Liability Insurance, Happiness Life Insurance, Centennial Life Insurance, and Pearl River Life Insurance have also failed to redeem capital bonds, reflecting widespread solvency pressure and refinancing difficulties in the industry.

**Collective Predicament of Small and Medium-sized Insurers**

Tian An Property Insurance's default occurred at a critical juncture for insurance industry development. On one hand, new insurance contract accounting standards will be fully implemented in 2026, eliminating available-for-sale financial asset classifications and using immediate rates for liability assessment. These changes will significantly increase profit volatility and solvency pressure for small and medium-sized insurers.

Zhou Jin, financial industry management consulting partner at PwC China, pointed out that the new standards will use immediate rates instead of the 750-day moving average rate curve for liability assessment. Insurance companies' performance sensitivity to interest rates will increase, and the impact of accelerated interest rate declines in recent years will become more apparent. This may add insult to injury for many small and medium-sized life insurers already under tight solvency conditions, potentially causing solvency adequacy ratios to fall below regulatory red lines and trigger regulatory actions unfavorable to these "marginal companies'" self-rescue efforts.

These structural changes present unprecedented challenges for insurance companies' capital management. Following Tian An Property Insurance's default warning, market concerns about problematic insurers' capital bond payment capabilities have intensified.

"The '15 Tian An Property Insurance Bond' default may be the beginning of market-based risk pricing," analyst Xu Yishan noted. Current property insurance business is highly concentrated at the top. Market concerns about breaking rigid payment mainly focus on life insurance companies. As of now, 16 life insurance companies have not disclosed their latest solvency reports, with Junkang Life Insurance newly added to disposal this year and Guohua Life Insurance newly added to non-disclosure companies.

From a macro perspective, Tian An Property Insurance's default marks the maturation of China's financial market risk pricing mechanism. For a long time, capital instruments issued by financial institutions had "rigid payment" expectations, with investors often ignoring potential risks. This default broke that illusion, prompting the market to re-examine the risk-return characteristics of financial institution capital instruments.

Qiu Jian stated that credit spreads will structurally widen due to risk repricing, especially for bonds from weak small and medium-sized insurers. Simultaneously, market awareness of credit risks from small and medium-sized insurers will significantly increase. Screening mechanisms for bond issuers will become more stringent, with investors becoming more cautious, demanding higher risk premiums and stricter information disclosure. This will lead to higher financing costs for small and medium-sized insurers' bond issuance, potentially increasing failure rates and tightening financing environments, with industry resources further concentrating toward leading institutions.

"Regulatory agencies are expected to strengthen reviews of insurance companies' bond issuance qualifications, promoting compliant and professional industry development while further raising market thresholds. This change will force small and medium-sized insurers to improve governance levels and capital quality, pushing the insurance bond market toward more mature and rational development," Qiu Jian added.

Looking at trends, Qiu Jian believes that in risk disposal solutions for problematic insurers, "overall transfer of insurance business (including policy liabilities) + capital supplementary bonds remaining in old entities, to be compensated as subordinated debt during bankruptcy liquidation" will likely become a template operation, unless future legislation mandates "capital bonds follow business transfers."

"Legal liquidation order prioritizes policyholders, with capital supplementary bonds clearly stated in prospectuses as 'ranking after policy responsibilities.' Investors purchasing these bonds are deemed to accept subordinated terms. Risk disposal procedures provide 'procedural protection' for bondholders, with regulators only needing to ensure orderly execution to maximize protection for policyholders," Qiu Jian believes. As long as regulators strictly enforce liquidation order, ensure process transparency, and allow bondholders to improve recovery rates through market mechanisms, balance can be achieved between "policyholder priority" and "reasonable relief for bondholders" through expectation management and investor education.

Yang Fan, general manager of Beijing Paipai Insurance Agency Co., Ltd., also believes that excluding capital supplementary bonds from business transfers will likely become standard practice in risk disposal.

"Because these bonds are subordinated debt with liquidation order after policy liabilities, the core is prioritizing policyholders' rights," Yang Fan said. "When balancing interests, the 'policyholder priority' principle should be maintained while considering bondholders' interests through market-based disposal mechanisms such as debt restructuring or partial payment. Regulators need to ensure transparent disposal processes and strengthen communication to avoid risk contagion and maintain overall market stability."

Tian An Property Insurance's default event marks both the end of one era and the beginning of another. It announces the unsustainability of extensive growth models, reveals the importance of risk management, and foreshadows accelerated industry differentiation. In Yang Fan's view, more small and medium-sized insurers are expected to achieve integration through mergers or market exits in the coming years, especially those with insufficient capital, chaotic governance, or homogeneous business models. This will drive the industry toward a "strong get stronger" pattern, beneficial for overall risk prevention and healthy market development.