China’s insurance industry is facing a host of fresh challenges, including readjustment of investment portfolios, as well as increased compliance costs and consolidation pressure, after regulators released new guidelines aimed at enhancing risk concentration management in the sector.

The Guidelines for Insurance Group Concentration Risk Supervision, issued by the National Financial Regulatory Administration ( NFRA ), introduce a standardized framework for identifying, measuring, and mitigating concentration risks. This seeks to unify risk oversight measures and enhance long-term business stability and resilience against financial disruptions.

There are about 240 insurers registered in China and 13 insurance groups control over 90% of the market.

Eight of these groups are registered in Beijing, three in Shenzhen, and two in Shanghai. Four of them are central government-owned, three state-owned, and two foreign groups.

These insurance groups operate across sectors including insurance, asset management, banking, securities, trusts, fund management, and even healthcare and fintech.

The new regulation is widely seen as a proactive measure to prevent systemic financial shocks, according to analysts.

By requiring insurers to incorporate concentration risk management into their broader risk frameworks, the guidelines promote a more structured approach to assessing exposure to specific entities, asset classes, and regions.

Measures such as board-level oversight and internal audits will ensure accountability, which in turn could lead to a more disciplined allocation of capital and reduced exposure to high-risk assets.

Increased costs

In the short term, compliance costs may rise as insurers enhance internal controls, update information systems, and adjust investment portfolios to meet regulatory expectations, according to an insurer.

Stricter monitoring of investments and risks may prompt insurers to reallocate assets, favouring safer, lower-risk investments such as government bonds and blue-chip equities over high-yield but risky sectors. Analysts also predict a slowdown in the expansion of investments in speculative or illiquid assets like real estate and private equity.

In view of the new guidelines, insurers with diversified portfolios and robust risk management practices are likely to gain a competitive edge, while smaller firms or those with concentrated asset exposures may face restructuring pressures. Firms struggling to comply with the new framework may seek mergers or strategic partnerships, leading to a potential consolidation in the sector.

Going forward, as firms align with risk concentration thresholds, some may need to raise additional capital to maintain solvency while diversifying investments, according to analysts. This may potentially spur capital market activity.

With clearer delineations of risk management responsibilities, insurance groups are likely to improve internal corporate governance and compliance structures, leading to greater transparency and investor confidence.