Minimum Evergrande Exposure for the U.S. Insurance Industry: NAIC

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US insurers face only “minimal” exposure to the potential collapse of real estate development giant China Evergrande, according to the National Association of Insurance Commissioners (NAIC) Capital Markets research team.

Evergrande is focusing on the residential market in China, but with $ 300 billion in debt to its credit, economists fear an impending default could impact international markets.

The company missed an interest payment of $ 83.5 million due on some of its dollar-denominated bonds on September 23, but it has an additional 30 days to honor the obligation without triggering a default.

However, NAIC analysts assure that the total exposure of U.S. insurers to Chinese real estate was $ 77.3 million in total in bonds and stocks at the end of 2020.

About 67%, or $ 52.1 million, was in bonds, with the remaining $ 25.2 million in stocks.

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The largest bond exposure, accounting for around half of the sector’s Chinese real estate bond exposure, was with Longfor Group Holdings Ltd.

With the COVID-19 pandemic negatively affecting property sales in China, China is experiencing a cash shortage amid a heavy debt burden of around $ 88 billion in dollar equivalent outstanding at the end of June 2021.

And the Chinese authorities have not yet made it clear whether they will provide financial support in the event of default.

The NAIC notes that about 80% of Chinese real estate bond exposure on Evergrande was to large insurers, or those managing more than $ 10 billion in assets, and that life insurance companies accounted for 71% of total exposure to bonds.

The largest equity exposure was Nam Tai Property Inc., accounting for 77% of the sector’s total exposure to Chinese real estate-related equities, at $ 19.5 million.

Exposure to equities was mainly to property and casualty insurance companies, analysts added, and half was to smaller companies or those with less than $ 500 million in assets under management.

“Partly due to the low overall exposure, Chinese bonds and real estate stocks do not raise concerns about credit risk among US insurer portfolios,” NAIC analysts commented. “Notwithstanding, on an individual portfolio basis, exposure should be monitored as a percentage of total capital and surplus. “

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