Caixin learned on October 11th (Reporter: Wang Hong) that the application for swap convenience tools has begun. What is the participation level of insurance institutions? Leading insurers have already made statements. China Life Insurance today expressed the need to strengthen the research on policy details and fully utilize the convenient swap tools. In addition, it is necessary to formulate investment and financing strategies that comply with its own characteristics and requirements, taking into account factors such as asset-liability structure, solvency constraints, medium and long-term allocation strategies, stability requirements of returns, and equity allocation ratios.

Analysts pointed out that the use of swap convenience tools requires independent application, therefore, the usage depends on institutions' willingness to increase stock holdings, investment opportunity assessments, leverage restrictions, the nature of liabilities, and income requirements (especially insurance funds). Experts indicate that insurance companies have a higher proportion of liquid asset allocation, hence the limited demand for optimizing liquidity indicators for swap convenience tools. This innovative tool requires adjustments in other regulatory indicators, as well as reforms in the performance assessment system for insurance fund investments to achieve better policy effects.

The usage depends on the willingness to increase holdings, opportunity assessments, leverage restrictions, etc.

On October 10th, the central bank announced that it will accept swap convenience tool applications. The use of swap convenience tools requires independent application, therefore, it is based on institutions' independent decision-making. So, what is the level of institutional participation willingness?

"It is essential to strengthen the research on policy details, accelerate system construction and strategy reserves, and fully utilize the swap convenience tools," said the relevant person in charge of China Life Insurance, emphasizing that for insurance funds, swap convenience tools fall under innovative business. As professional institutional investors, insurance funds should enhance communication with financial regulators, strengthen policy research efforts, clarify policy details and key points, accelerate the construction of relevant business systems, timely propose relevant strategy reserves, and make full preparations for related business operations, to better play the role of insurance funds as stabilizers in the capital market.

"Insurance funds should raise their political stance and deeply understand the significant importance of swap convenience tools in supporting the entry of medium and long-term funds from the insurance industry into the market, maintaining the stable and healthy development of the capital market. Work on institutional research, system construction, enhance the strategic determination and capability of the medium and long-term allocation of insurance funds," the relevant person from China Life Insurance also stated.

CICC Money Research indicates that institutions believe this tool can effectively improve the liquidity of assets held, enhance the ability to increase stock holdings, and is also beneficial for maintaining financial market stability. The initial 500 billion yuan quota is relatively sufficient, and financial institutions are expected to actively apply. The usage depends on institutions' willingness to increase stock holdings, investment opportunity assessments, leverage restrictions, the nature of liabilities, and income requirements (especially insurance funds).

Compared with the traditional sell-and-buyback operations commonly used by insurance companies, swaps not only expand the range of collateral to stock assets, but also clearly specify the central bank as the counterparty, making the use of funds more focused. HTSC's chief analyst of non-bank sector, Li Jian, believes that the impact of swaps convenience on the leverage of insurance funds may depend on the cost of financing and overall stock allocation.

Zhou Jin, managing partner of PwC China's financial industry management consulting, stated that the innovative introduction of swap convenience tools gives insurance companies more investment operational flexibility, thereby stimulating and encouraging them to more actively participate in stock market investments. In the long term, this is bullish for the development of capital markets.

Zhongjin Currency Research pointed out that since government bonds and central bank bills are high-grade, highly liquid assets, it is expected to finance at a lower cost (below 2%). Increasing holdings of high-dividend assets (dividend over 3%) using OCI accounting measurement methods that do not affect current profit and loss due to market value fluctuations can cover financing costs and achieve better current investment returns. However, long-term investment returns also depend on market value fluctuations.

Stimulus effects require observation, and policy details need to be clarified.

The person in charge of China Life Insurance stated that, in combination with the institution's actual situation, it is necessary to flexibly utilize swap convenience tools, 'revitalize existing holdings, make good use of incremental holdings', and enhance the efficiency of insurance fund utilization. In the process of implementing the central strategic deployment, various institutions such as funds, insurance, and brokerages, especially various insurance asset management institutions, should formulate investment and financing strategies that are in line with their own characteristics and requirements, and flexibly use swap convenience tools to 'revitalize existing holdings, make good use of incremental holdings', enhance the efficiency of insurance fund utilization, and improve the ability of insurance funds to serve the high-quality development of the real economy.

Regarding the stimulating effects on insurance companies, Zhou Jin believes that further evaluation is needed. 'On one hand, the overall investment strategy of insurance companies is generally conservative, with a relatively high proportion of highly liquid assets such as government bonds, financial bonds, high-quality stocks, and mutual funds. Therefore, the demand for optimizing their liquidity indicators through innovative tools like swaps convenience is limited. Therefore, this innovative tool also needs to be accompanied by adjustments to other regulatory indicators and reforms of the investment performance evaluation system for insurance fund utilization in order to achieve better policy effects.'

Li Jian pointed out that in the process of using financial tools such as swaps convenience, insurance companies also need to address various risks and challenges. For example, in the life insurance sector, adverse effects on New Business Value (NBV), as well as changes in product profit structure that may lead to a decline in NBV, may be encountered. As for property insurance, fierce competition in the auto insurance market may reduce underwriting profit margins. In addition, attention should be paid to the existence of market volatility and credit risk exposure, which may bring investment risks. Therefore, when introducing these new tools, insurance companies should carefully assess potential risks and formulate corresponding risk response strategies.

'Insurance companies have new premium inflows every month and do not lack cash flow. In fact, the proportion of equity/debt allocation in insurance has recently been decreasing. It is crucial to see whether money can be earned in the stock market. This is due to current economic reasons and expectation reasons. Ultimately, there needs to be confidence in being willing to allocate stocks in order to be willing to borrow money from the central bank to allocate stocks', said an insurance asset management professional.

What are the specific policy details that need to be clarified? Zhou Jin believes that the details should include the threshold for participating institutions, the scope and recognition criteria of securities swaps, how to price, how to ensure the use of funds, and other practical details.