Mortality resilience improves in China

We conduct research into the resilience of 31 China's provinces. Since 2022, we have applied the Swiss Re Institute Resilience Index methodology to assess the mortality and natural catastrophe resilience of the provinces.¹ We have also constructed an index of insurance development resilience for the provinces.²

This year, we have re-assessed the mortality resilience and mortality protection gaps of all the provinces. Mortality protection is defined as the financial needs to maintain a family's standard of living in the event of the premature death of a primary breadwinner. Financial needs consider mainly the potential loss of the income earned that would have accrued from the breadwinner's remaining years of working life. A family's financial resources to address the mortality risk include its savings and financial assets, and life insurance coverage. The latter is a key financial tool to address mortality risk. Typically countries/regions with higher mortality resilience have a well-developed life insurance market and higher life insurance penetration.

In 2023, China's mortality protection gap narrowed by 6% from the year before and the resilience index gained 2.3 percentage points (ppts) to 38.3% (see Figure 1). This marks a turnaround after several years of declining mortality resilience and a widening protection gap.

Figure 1. China's mortality protection gap and resilience index, 2013-2023

Last year's improvement in resilience was primarily driven by economic trends. We view it as a turning point to a long-term trend of growing resilience rather than a temporary phenomenon. This is welcome, as China's mortality resilience is still below pre-pandemic levels.

The recovery after the opening up of China's economy post pandemic has been slow, and income levels are growing half as fast as before the pandemic Structural economic challenges related mainly to the property market, alongside household concerns about future income and financial stability, have seen reductions in the size of outstanding mortgages for the first time in decades. This has resulted in slower growth in protection needs than protection available, and hence to improved resilience (see Figure 2).

Figure 2. Key drivers of the improvement in M-RI for China, 2023

Life insurance has played an important role in the environment of economic slowdown. We estimate that greater life insurance coverage contributed 1.2 ppt to the improvement in mortality resilience in 2023 (see Figure 2). China's life insurance sector made a rapid comeback last year as customer demand rose ahead of a lowering of the ceiling on guaranteed rate of life products, with nominal premiums increasing by 12.8% from 4% in 2022.

These structural trends affect China's mortality protection gap similarly. We anticipate that the mortality protection gap is likely to remain stable or even decline further in the coming years as economic transformation towards a consumption-driven growth model progresses.

Despite last year's improvement, the mortality protection gap has more than doubled over the past decade, reaching USD 73.6 billion (CNY 521 billon) in 2023. The main drivers have been higher household incomes and debt. The rapid rise in debt constrains households' ability to respond to major financial risks. Household debt in China increased more than sevenfold between 2010 and 2023, to CNY 78.3 trillion (USD 11 trillion) . That has taken the household leverage ratio (household debt to GDP) up to 62% today (2010: 27%), higher than for the euro area (54%) and the emerging markets average (49%).³

Our analysis of mortality resilience in each of China's provinces evaluates the contribution of life insurance to their resilience level. In 2023, mortality resilience improved in all the 31 provinces,⁴ owing to robust growth in the life sector. For instance, in nominal terms life insurance premiums in Beijing and Shanghai grew by 21% and 25%, respectively, driving a 5 ppt and 4ppt strengthening of mortality resilience, also respectively. These were the biggest improvements across all regions.

That said, we also found significant disparity in mortality resilience across provinces, ranging from less than 15% to more than 50%. And in 21 provinces (or 68% of China) the index is lower than the national average.

Figure 3. Mortality resilience index vs life insurance penetration (2023), by province

Disparities in life insurance developments explain the difference in mortality resilience among regions. For instance, in Southeast China GDP per capita stands at USD 15 394, the highest nationwide. Yet the resilience index is around 4 ppts lower than that of north China, where life insurance penetration is higher (2.7% in north China vs 2.2% in southeast China, see Table 1).

Similarly, northeast China (including Heilongjiang, Liaoning and Jilin provinces) has lower per capita GDP than other regions, but higher insurance penetration (2.9%). This development has been supported by government promotion of the development of private insurance solutions such as small-amount life insurance. This suggests life insurance is becoming an effective financial tool to address mortality risk, especially in less economically developed areas.

Table 1. M-RI and macroeconomic indicators of China's provinces, 2023

The global insurance “S-curve” indicates that the life insurance market evolves with economic development. On the steep section of the curve, where GDP per capita is in the range of USD 5 000 and USD 35 000, life insurance premiums will likely grow at a faster rate than economic growth. Today, all of China's provinces fall within this GDP per capita category. We expect life insurance penetration for Southwest and Northwest China to grow faster than GDP per capita, and see insurance growth in more economically developed regions such as Beijing and Shanghai  stabilising (see Figure 4).

Over the long run, mortality resilience is likely to improve in most of China's regions, and the disparity across regions should narrow. We estimate that when life insurance penetration increases by 1%, the mortality resilience index could increase 6 ppt, keeping other factors unchanged.

Figure 4: Life insurance penetration vs per-capita real GDP by province in China, S-curve 2023