Zhitong Finance APP learned that Guosen Securities issued a research report stating that the increment life insurance is a new product in recent years, and the current stock ratio is relatively low. It is expected that the short-term positive news will boost the premium income in June, and some companies may use the opportunity to suspend sales to conduct 'speculative disruption'; the middle term (July-August) may have a certain insurance demand overdraft effect, so the premium growth rate may have a certain decline; the long-term bullish trend will reduce the industry's overall pressure drop in debt costs and decrease the risk of interest rate differential losses. From the perspective of asset allocation, if the corresponding rectification is implemented, with the increase of premium income, it will continue to favor the configuration of high-dividend (OCI equity) assets of insurance capital, and at the same time there will be a certain incremental catalyst for the configuration of long-term bonds.
Target: It is recommended to pay attention to China Pacific Insurance (601601.SH) and China Life Insurance (601628.SH), which benefit from both assets and liabilities.
Event: Recently, some insurance companies will formally suspend the sale of 3.0% incremental life insurance on June 30 and will list incremental life insurance with a scheduled interest rate of 2.75% on July 1 to comply with the company's risk management requirements, according to a report in the Shanghai Securities News.
Guosen Securities' main points are as follows:
Some personal insurance companies have lowered product pricing rates and pressed down their rigid costs on the liability side.
At present, the proportion of traditional life insurance policies in circulation in China's insurance industry is still high. Against the background of declining asset returns, this poses certain pressure on matching assets and liabilities for insurance enterprises, and the risk of interest rate differential losses has intensified. From 2000 to 2017, with the continuous improvement and innovation of China's insurance industry product structure and the impact of accounting standards, traditional life insurance represented by dividend insurance and universal life insurance has a rapidly increasing proportion, and such policies have certain "long-term" characteristics. Therefore, the proportion of traditional life insurance policies in the industry's total premium income is as high as 54% at the end of 2023.
At the same time, with the downward shift in residents' risk preferences in recent years and the breaking of redemption attributes of other wealth management products, guaranteed return-type incremental life insurance products have further increased the rigid costs of insurance companies' liability sides, making them subject to a certain interest rate differential loss risk against the backdrop of declining asset returns.
Against this backdrop, the industry has actively pressed down debt costs and reduced the risk of asset-liability mismatches.
In March this year, regulatory agencies provided guidance on personal insurance companies, further implementing the principle of cost-benefit matching, pressing down the settlement rate of universal life insurance, and lowering the upper limit of the settlement rate of some small and medium-sized insurance companies to 3.3% and that of large-scale insurance companies to 3.1%. At the same time, the bonus level of dividend insurance should also refer to the way universal life insurance is handled.
Guosen Securities said that from 2024, various insurance companies actively adjust their product designs and sales models, so it is expected that 2024 will be a window period of excessive liability side for the personal insurance industry, coupled with the high base in the second quarter of 2023, and the overall industry premium growth rate is expected to be relatively weak in the near future. In addition, the current yield on 10-year and 30-year national bonds is about 2.30% and 2.53% respectively. Therefore, it is expected that the fixed cost of 3.0% or the pricing rate of incremental life insurance will face a certain asset allocation pressure, and the pricing rate of incremental life insurance in the industry is expected to be systematically lowered to the range of 2.5%-2.75% in the future.
The proportion of incremental life insurance in stock is currently relatively low.
Incremental life insurance is a new product in recent years, and its current stock ratio is relatively low. Its main advantage is the 'rigid income' of policies. Compared with annuity insurance, the flexibility of incremental life insurance is relatively high, and funds can be extracted through partial reduction of insurance or withdrawal. At the same time, the payback period of such products is relatively short, generally from the third to fifth year after completion of payment, it is possible to realize the "payback" (i.e., the policy value is greater than the accumulated insurance premium). With the increase of the policy holding period, the cash value and realizable internal rate of return are increasing, and the investment value is highlighted. Overall, it is expected that the proportion of current stock of such products is relatively low, about 10%.
For insurance capital, the incremental opportunity of asset allocation is concentrated in high-dividend stocks and long-term bonds.
From the perspective of asset allocation, if the corresponding rectification is implemented, with the increase of premium income, it will continue to favor the configuration of high-dividend (OCI equity) assets of insurance capital, and at the same time, there will be a certain incremental catalyst for the configuration of long-term bonds. Overall, insurance capital is underallocated this year, apart from liability-side expansion. Taking into account the expiration of non-standard assets such as debt support plans, hand-made interest supplements, and the pressure of reconfiguration brought about by them, the overall industry is in a state of asset scarcity.
For insurance capital, on the one hand, the dividend assets characterized by high stock dividends are not enough to buy, and the first quarter's investment income of endowment insurance is 3.5%. Currently, the representative bank, coal and other sectors have dividends of about 6%, which is significantly attractive. On the other hand, high ROE assets still have high attractiveness to insurance capital. This year, the listed companies that China Pacific Insurance took control of six times in a row are all high stock dividend and high ROE assets, including Wuxi Rural Commercial Bank/City Development Environment/Jiangsu Jiangnan Water/Wuxi Huaguang Environment & Energy Group/Qinhuangdao Port/Jiangxi Ganyue Expressway.
In addition, in terms of bonds, a responsible person from the relevant department of the People's Bank of China previously stated that the long-term national bond yield will run in a reasonable range that matches long-term economic growth expectations. Therefore, insurance capital is more cautious about long-term bond allocation, but with the expansion of fund size, it is expected to still have a certain catalytic effect on insurance capital bond allocation.
Risk Warning: Decline in long-term interest rates; pressure on asset returns; slower growth in premium income than expected, etc.