Only in the first half of 2024, five mainland insurance companies listed on the Hong Kong stock market have already exceeded 90% of last year's annual net profit attributable to shareholders.

The 5 insurance companies achieved a total revenue of 1.27 trillion yuan, with a net profit attributable to the parent company of 171.799 billion yuan, an increase of 7.41% and 12.55% respectively.

$CHINA LIFE (02628.HK)$Leading in scale growth, with a revenue increase of 23.27%.$CPIC (02601.HK)$Leading in profit growth, with a net profit increase of 37.09%.

Investment performance is one of the core factors driving the growth in net profit.

In the first half of the year, the long-pressured insurance asset side finally warmed up, and the profits of the 5 listed insurance companies increased by around 30%.

With the background of falling long-term interest rates and increased volatility in capital markets, the rebound benefits from the "bond bull" and dividend asset growth.

On one hand, the "bond bull" drives the fundamental recovery.

Listed insurance companies' asset allocation all follows the principle of asset-liability matching, seeking opportunities for phased allocation of equity assets on the basis of fixed income "bottoming out".

Under the "bond bull" driven by declining interest rates, insurance companies generally have good returns on fixed income assets such as long-term interest rate bonds, combined with the low base of the same period last year, leading to a collective improvement in fundamentals.

On the other hand, equity assets have become the key to victory or defeat.

After the release of the new "Nine Articles on National Sovereignty", dividend assets are undergoing a long-term valuation reshaping.

China Pacific Insurance Company (China Taibao) that has increased its allocation in high-yield stocks and other equity assets.$NCI (01336.HK)$,$PING AN (02318.HK)$All three companies achieved a revenue growth of over 20%.

The total investment return of the three institutions is higher than the net investment return, indicating good performance in investment asset price differentials, fair value changes, and other aspects.

Of the remaining two companies, China Life Insurance is not comparable due to the accounting standard switch and lack of comparable data;

Increased allocation of fixed income assets$PICC GROUP (01339.HK)$The investment income decreased by 7.69% year-on-year to 29.064 billion yuan, and the net investment return rate is higher than the total investment return rate.

Signs of recovery are emerging.

Amid declining interest rates and volatility in the equity market, listed insurance companies' investment side has been under pressure for a long time.

In 2023, with the switch of accounting standards, among various key investment indicators, only Ping An Insurance's total investment yield slightly increased by 0.6 percentage points year-on-year; the remaining four insurance companies experienced varying degrees of decline in net investment yield and total investment yield.

There are various reasons for the poor performance.

China Life Insurance was too aggressive in positioning during the equity market retreat in 2022.

However, the following year continued to fluctuate at a low level, and the price difference losses generated by the equity portfolio led to a phase of investment income pressure, with the total investment yield decreasing by 1.26 percentage points year-on-year.

China Pacific Insurance suffered a trading loss of 11.311 billion yuan and an impairment loss of 2.093 billion yuan on investment assets.

Even with the support of high-dividend stocks with a nearly 40% increase in dividend payout ratio, the total investment yield still declined by 28.3%.

The shareholding performance of New China Life Insurance has been further amplified by the switch to new accounting standards.

Under the new standards, the proportion of stocks recorded as FVOCI (fair value through other comprehensive income) by New China Life Insurance is lower compared to the overall investment in stocks, resulting in more significant performance fluctuations than other insurance companies, with a total investment return rate of only 1.8%.

The pressure has not yet dissipated in the first quarter of 2024.

Five insurance companies, excluding gains or losses from fair value changes, had a total investment loss of 2.279 billion yuan, with only China Life Insurance and PICC Group achieving profits on the investment side.

Several insurance executives emphasized asset-liability management and called for the market to "rationally view short-term fluctuations" at the first-quarter conference.

Huang Benyao, the former president of PICC Group (now transferred to China Life Insurance), stated that PICC Group will improve the level of management for its investment portfolio accounts, actively support long-term bond and local government bond issuance, and reduce the duration gap of assets and liabilities.

This strategy is reflected in their performance.

In the first half of the year, the proportion of fixed-income assets in PICC Group increased by 2.8 percentage points to 67.3%, while the proportion of time deposits, government bonds, and treasury bonds increased by 2.2 and 5.2 percentage points respectively.

The proportion of equity assets decreased by 2.3 percentage points to 19.2%, with funds and stocks declining by 1.8 and 0.3 percentage points respectively.

However, there was a slight decline in overall investment, with the annual net and total investment yield decreasing by 0.6 and 0.8 percentage points respectively.

At the end of the first quarter, Yang Yucheng, Chairman of New China Life Insurance, expressed firm bullishness on H-share capital markets, especially high-dividend, high-yield types, and will also invest in new infrastructure alternative investments.

In the first half of the year, New China Life Insurance, China Pacific Insurance, and Ping An Insurance all tended to increase their allocation to equity assets, with the stock investment ratio increasing by 2.1, 0.6, and 0.2 percentage points to 10%, 9%, and 6.4%, respectively.

New China Life Insurance, which significantly increased its stock holdings, has become the "biggest winner" on the investment side, leading five listed insurance companies with a total investment yield of 4.8%.

Under different strategies, although there are performance differences among insurance companies, the overall investment income has increased by about 30% compared to the same period last year.

For insurance funds facing sustained pressure on the investment side starting in 2023, this achievement is not easy to come by.

Driven by the resurgence in investment, the first half of the year has seen the five insurance companies surpassing 90% of the previous year's full-year level.

Dividends and bond bulls drive.

When analyzing the first half performance, CICC Deputy Director Cai Zhiwei described fixed income and equity as ballast and victory stones respectively.

If we refer to changes in investment income, equity assets represented by high-dividend stocks seem to be the key to victory or defeat.

After the publication of the new "nine provisions", dividend assets in the equity investment field have received extensive attention, and New China Life Insurance, China Pacific Insurance, and Ping An Insurance, which tend to increase the allocation of equity assets, have all seen increased investment income.

On the one hand, insurance funds have limited investment targets in a low interest rate environment, and the stable dividends of high-dividend stocks are in line with the long-term stable income requirements of insurance funds.

Liu Hui, Deputy Director of China Life Insurance, stated that H-shares are currently undervalued and have long-term allocation value.

Deng Bin, Chief Investment Officer of Ping An, stated that the company will maintain the allocation of dividend assets. "Under the downward pressure on interest rates, the long-term value of high-dividend stocks exists."

On the other hand, listed insurance companies that have already experienced changes in accounting standards have perceived the importance of a long-term and configuration investment philosophy earlier, and are more inclined to dividend assets that are expected to be included in FVOCI for smoothing performance.

The importance of the victory stone does not mean that the ballast stone has lost its value. Listed insurance companies in the year have also made significant adjustments to fixed income assets.

Take New China Life Insurance, which leads in overall return on investment, as an example.

In fixed income assets, fixed deposits and bonds, and investment assets increased by 4.7% and 4.8% year-on-year; shareholdings in reits and bonds investment plans decreased by 24.9% and 19% respectively.

Qin Hongbo, Vice President of New China Life Insurance, said that the company holds a variety of high-yield bond varieties, "which has provided a good foundation for our fixed income portfolio to resist interest rate risk."

The People's Insurance, which increased its shareholding in fixed income assets, also performed well.

Although it is the only company among the five insurance companies with a decline in investment income, PICC's investment return rate is not lagging behind.

The net investment return rate of 4.1% still leads the industry; the total investment return rate of 3.8% is only lower than New China Life Insurance.

Good performance is driven by the "bond bull".

Since October last year, the bond market has continued to strengthen. The yield on 10-year government bonds has dropped from 2.57% at the beginning of the year to 2.21% at the end of June.

Interest rate bonds are the focus of China's people insurance in the first half of the year.

In terms of fixed income, the proportion of time deposits increased by 2.2 percentage points to 7.9%, the proportion of government bonds and treasury bonds increased by 5.2 percentage points to 21.1%, while the proportion of financial bonds and corporate bonds decreased.

Cai Zhiwei stated that increasing the allocation of fixed income assets aims to boost the cycle. "We have seized the window for allocating interest rate highs and increased the allocation of mature government bonds and local government bonds, which helps to narrow the short-term gap between payments."

Cai Zhiwei also stated that the company's public market equity asset allocation is already at a leading level within the industry, and in the future, it will have a better grasp of absolute returns vs. relative returns, current returns vs. long-term returns, value investing vs. growth investing, and other relationships.

However, while the overall growth in investment is positive, some voices in the market are cautious about the prospects of insurance funds, advocating that the growth potential of dividend assets and the "bond bull" are limited.

For example, the dividend asset market has reached the middle to late stage, and in July, the SSE and CSI dividend indexes had already given back most of their gains for the year. The "bond bull" may also cool down after the central bank tightens the funds' pressure on the bond market sentiment.

Change is constant. The market is still paying continuous attention to how insurance companies can continue to ensure investment returns and promote asset-liability matching in the future.

Editor/ping