On September 20, Caixin reported that the total assets of China's insurance industry reached 30 trillion yuan in 2023. In the past two years, the government, regulatory agencies, and the market have repeatedly called for the cultivation of insurance funds as patient capital. The so-called patient capital emphasizes long-term investment and value investment, which can provide innovative and long-term funding support for sustainable development and contribute to market stability and prosperity.

Today, at the Second Xiangmihu Wealth Management Forum and the establishment ceremony of the Shenzhen Wealth Management Association, Xie Yonglin, General Manager and Co-CEO of Ping An Group, introduced the thinking and practice of insurance in the process of cultivating patient capital, as well as the challenges in the actual use of insurance funds.

Insurance funds are naturally matched with patient capital.

In Xie Yonglin's view, "long cycle", "high stability" and "large scale" are the three important characteristics of insurance capital, which also constitute the prerequisites for patient capital. Xie Yonglin introduced that insurance products have high stability, and the time difference between premium payment and payout can reach decades or even longer. With the annual payment of insurance products, the insurance funds are not frequently "in and out", and there is a relatively stable cash flow expectation. Taking Ping An as an example, including reinvested income, Ping An Group invests five to six trillion yuan every year. These three attributes make insurance funds naturally capable of becoming patient capital, and have great potential in serving national strategies, supporting the real economy, and promoting the development of new productive forces.

In terms of the application direction of insurance funds, the long-term nature and stability of insurance funds are conducive to improving the coherence of investment and becoming the cornerstone of the capital market. Through the resource allocation function of the capital market, insurance funds can provide a source of fresh water for the real economy through direct financing tools. In addition to traditional mature assets such as infrastructure, rent, and real estate, the long-duration characteristics of insurance funds can also effectively fill the financing gap for early-stage technological innovation enterprises, accompany the growth of scientific and technological enterprises, and accelerate the cultivation of new productive forces.

Insurance funds still face three major challenges in their use.

However, Xie Yonglin also acknowledged that compared with other patient capital, the actual use of insurance funds also faces three major challenges.

First, there is a contradiction between stability and market volatility. Insurance funds, as a stabilizer of the economy and society, and also as retirement funds for the general public, have high requirements for safety and stability. However, when insurance funds invest in capital markets, they are easily affected by stock price fluctuations. According to the new accounting standards, equity market price fluctuations directly affect insurance companies' net income, net assets, solvency, and investment returns. Short-term market fluctuations will to some extent affect the effectiveness of insurance fund allocation in capital markets.

Second, there is a contradiction between the rigid cost of insurance funds and the pressure on asset returns. After the new regulations on asset management, bank wealth management and trust products can break the "1-to-1" redemption guarantee, while insurance products still have a guaranteed return. The average cost of liabilities for listed insurance companies is close to 3%. However, many sci-tech companies have no initial income and a long return cycle, which puts pressure on the investment returns of insurance funds.

Xie Yonglin said, "The regulator has always attached great importance to the problem of interest spread in the insurance industry, which is also the biggest gray rhino in the industry. However, many sci-tech companies have no income in the early stage and may have a long return cycle, which will exert pressure on the investment returns of insurance funds."

Third, there is a contradiction between the traditional investment capability and the investment requirements in the new situation. Under the traditional model, insurance companies prefer to invest in mature assets that have predictable cash flows and sufficient risk mitigation measures. However, in terms of sci-tech enterprises representing new productive forces, insurance companies still have shortcomings in research and investment capabilities, resulting in the current situation where insurance companies want to invest in new productive forces but do not know how to do it.

Based on the above issues, relevant regulatory agencies have introduced multiple policies to guide long-term investment of insurance funds, support technological innovation and industrial upgrading. For example, adjusting solvency regulatory standards, allowing insurance funds to invest in non-insurance financial institutions' private equity funds, and removing restrictions on investment in sci-tech enterprises. At the same time, the China Banking and Insurance Regulatory Commission has lowered the guaranteed interest rate of insurance products twice last year, from 3.5% to 2.5%, reducing the rigid liability costs of insurance companies and relieving the pressure on the investment side, leaving more flexibility for long-term investment.

Reform and innovation are still needed to improve the quality and effectiveness of long-term investment by insurance funds.

In promoting insurance funds as patient capital, Xie Yonglin proposed four key words: "strong awareness," "filling gaps," "building an ecosystem," and "creating a favorable environment." Among them, "strong awareness" means that insurance funds have a large scale and long cycle, closely related to the country's economic development and should be used in accordance with the national strategic direction; "filling gaps" means that insurance companies should optimize their strategies in situations where they are hesitant or unsure about investments. This includes strengthening industry research capabilities, optimizing internal mechanisms to improve investment efficiency, and providing moderate tolerance and long-term assessment mechanisms, among other measures.

Xie Yonglin introduced, "building an ecosystem" means using insurance funds to drive the construction of a "capital + capabilities" ecosystem to enhance investment returns and benefits. For example, Ping An Group has cooperated with many top investment institutions to invest in new productive forces, covering areas such as new energy, AI, biopharmaceuticals, and low-altitude economy. In the future, it will also expand to core companies in the industry chain, universities, and research institutions, bringing together the necessary elements for patient capital and making insurance funds more professional, larger-scale, and more sustainable in their role as patient capital."

"In terms of 'environment', insurance companies will continue to provide suggestions to regulatory agencies and continuously optimize the policy environment for nurturing patient capital. For example, Ping An optimizes the equity method recognition criteria and conducts equity method accounting for high-quality stocks of state-owned enterprises to avoid the impact of short-term stock price fluctuations on investment income, thus solving concerns for insurance capital entering the market." Xie Yonglin pointed out that in the long run, we can also explore measures such as introducing tax incentives, strengthening the linkage between primary and secondary markets, and encouraging investments in long-term dividend products to create a cycle of long-term and value investments, promoting the greater role of insurance funds in supporting the real economy and fostering new production factors.