US insurers face only “minimal” exposure to the potential collapse of property development giant China Evergrande, according to the research team at the National Association of Insurance Commissioners (NAIC) Capital Markets.
Evergrande is focused on the residential market in the China, but with $300 billion of debt to its name economists fear that an imminent default could impact international markets.
The company missed an $83.5 million interest payment due on some of its dollar-denominated bonds on September 23rd, but it has an additional 30 days to meet the obligation without triggering a default.
However, NAIC analysts assure that US insurers’ total exposure to China real estate was a minimal $77.3 million in total bonds and stocks at year-end 2020.
About 67%, or $52.1 million, was in bonds, with the remaining $25.2 million in stocks.
The largest bond exposure, representing about half of the industry’s Chinese real estate-related bond exposure, was with Longfor Group Holdings Ltd.
With the COVID-19 pandemic negatively affecting property sales in China, is experiencing a cash shortage amid a heavy debt burden of approximately $88 billion in dollar equivalent outstanding debt at the end of June 2021.
And Chinese authorities have not yet clearly indicated whether they would provide any financial support in the event of a default.
NAIC notes that about 80% of the China real estate bond exposure to Evergrande was with large insurers, or those with more than $10 billion assets under management, and life companies accounted for 71% of the total bond exposure.
The largest stock exposure was Nam Tai Property Inc., representing 77% of the industry’s total Chinese real estate-related stock exposure, at $19.5 million.
Stock exposure was predominantly with property and casualty companies, analysts added and half was with small companies, or those with less than $500 million assets under management.
“Due in part to the small overall exposure, Chinese real estate bonds and stocks do not raise concern regarding credit risk among U.S. insurer portfolios,” NAIC analysts commented. “Notwithstanding, on an individual portfolio basis, exposure should be monitored as a percentage of total capital and surplus.”
