Policies to promote the medium and long-term liquidity of the Capital Markets will gradually be implemented before the Spring Festival of the Year of the Snake.

The day after the release of the "Implementation Plan for Promoting Medium and Long-Term Funds to Enter the Market" (hereinafter referred to as the "Plan"), China Securities Regulatory Commission Chairman Wu Qing emphasized the importance of attracting medium and long-term funds to the market at a press conference held by the State Council Information Office on January 23, and proposed specific guidelines.

Regarding the improvement of the investment proportion and stability of insurance funds in A-shares mentioned in the "Plan," Wu Qing stated, "Strive for large state-owned insurance companies to invest 30% of new premiums in A-shares starting from 2025."

At the same time, efforts to promote the second batch of pilot long-term stock investments by insurance funds are being expedited, with an expected 50 billion in funding to be in place before the Spring Festival.

The expectation of real funds quickly ignited the enthusiasm of A-share investors; the scale of the "30% of new premiums" also sparked widespread discussion.

In just one day, the market has already seen various speculations about hundreds of billions, trillions, and even tens of trillions of medium and long-term funds.

Four methods for calculating premium investments in the market.

There are generally four interpretations in the market regarding the funding amount corresponding to the "new premium" mentioned by regulators, with a difference of more than 10 times between the lowest and highest views.

Taking the premium data of five large state-owned insurance companies: PICC, China Life, Taikang Life, Xinhua Insurance, and Tianping as an example.

The first viewpoint believes that "new premium" refers to "year-on-year new premium."

For example, some media pointed out in their calculations that the year-on-year new premium scale of five state-owned large insurance companies in 2024 would exceed 90 billion yuan, and the estimated released funds from "new premium 30%" would be over 30 billion yuan.

However, the volume of opinions holding this view is limited.

According to the current estimates of equity assets of various insurance companies, 30% of the year-on-year new premium hardly constitutes an increase.

For instance, Xinhua's stock assets at the end of 2023 grew by 24.027 billion yuan year-on-year, while the year-on-year new premium during the same period was only about 3 billion yuan, and the two figures are quite far apart, with the latter's 30% being a mere "drop in the bucket" for the former.

The second viewpoint suggests that "new premium" may refer to "total premium income - various expenses."

It has been pointed out by a person in the asset management sector of large insurance companies that various expenditures such as policy surrenders, claims, and expenses account for about 50% of premium income. If estimated using 2023 data, the five large state-owned insurance companies should have additional A-share funding around 200 billion yuan.

The non-bank team of Soochow pointed out that in 2024, the additional equity funding corresponding to the five insurance companies under this standard should be about 194 billion yuan; estimating a 5% premium growth rate, the new equity funding next year should be in the range of 194-203.7 billion yuan.

The third viewpoint believes that "new premiums" refer to "new single premiums" in the reports, meaning the premiums corresponding to new insurance contracts signed in the current period, excluding renewal premiums.

Due to the long duration of life insurance and most property insurance being under one year, "new premiums" can also be summarized as "life insurance new single premiums + total property insurance premiums."

The strategy group of Ping An Securities estimated that under this standard, the additional equity funding for the four large state-owned insurance companies, including China Life, Taiping, Xinhua, and People’s Insurance, will be approximately 343.2 billion yuan in 2025; estimating a 5% growth rate, the additional funding next year will be about 360.4 billion yuan.

The fourth viewpoint suggests that "new premiums" mean "new recorded premiums," which represents all "premium income."

It is estimated that the premium income of the five large state-owned insurance companies in 2024 will be around 1347 billion yuan, corresponding to additional equity funding of about 400 billion yuan.

The highest probability.

Determining the final market entry path can roughly follow two directions:

One is whether the 'new premium of 30%' constitutes an increase, in line with the policy direction of promoting medium- and long-term funds entering the market;

The second is whether the increase will result in excessive capital occupation for insurance companies, thereby affecting their solvency.

Based on the above directions, the fourth speculation representing the highest increase in equity funds is indeed likely to materialize.

Data calculated by the strategy group of Ping An Securities indicates that if we assume 'new premiums' account for total premiums, by the end of the first half of 2024, the new allocation scale of stock funds for China Life, Taikang, Xinghua, and PICC among the 'new premiums' will be 15.8%, 12.2%, 70.6%, and -4.8% respectively.

Among these three insurance companies, there is room for increased allocation, and if the focus is broadened to the entire insurance industry, the annual incremental equity funds could reach trillions.

Wang Guojun, a professor at the School of Insurance at the University of International Business and Economics, pointed out that the current balance of insurance fund investments is over 30 trillion, and with the development of the insurance market, over 4 trillion in new insurance funds can enter the market each year.

However, insurance companies were previously reluctant to increase their allocation to stocks, not only to ensure the normal operation of current financial profits but also due to concerns about excessive minimum capital occupation under the second phase rules of 'Solvency II'.

The latest release of the "Notice on Optimizing the Regulatory Standards for Insurance Companies' Solvency" states that,$CSI 300 Index (399300.SZ)$the risk Indicators of the Star are 0.3 and 0.4 respectively.

Some large insurance companies believe that the company's Shareholding in high-dividend Stocks is restricted and constrained by solvency and other aspects. "Although high-dividend Stocks have a stabilizing effect on the profit and loss statement, they are still Stocks, and the Market Cap fluctuations affect both comprehensive income and net assets."

Zhou Jin, a partner at PwC China's financial industry management consulting, stated: "Further encouraging insurance funds to support long-term investment in the stock market can also be adjusted from the solvency rules.

Zhou Jin suggested, "The capital occupation coefficient for long-term allocated Stock Assets could be reduced, or risk coefficients linked to the holding period or assessment period could be adopted to better guide insurance funds to increase Stock allocation and extend the holding period."

Direction is more important than the path.

Despite discussions on the future amount of funds entering the market being one of the hottest Topics in the market, some industry insiders still say, "Being overly concerned about the caliber does not matter much."

"If the goal of 30% is implemented as a rigid indicator, it will be very complicated and should be understood more as a guideline," said the industry insider. "It's not just about the criteria, but also about the measurement standards—such as which of the stocks of insurance companies count as existing capital allocation and which count as incremental capital allocation?"

In practical cases, the insider pointed out that it is even possible for the overall position of insurance company stocks to decrease while still meeting the condition of '30% of the new premium for investment in A-shares.'

The insider stated, "Turning guidance into mere wordplay will lose its meaning. The regulator has released a positive signal for insurance funds entering the market, and it is believed that 'new premiums' can be understood according to the concept of 'total annual premiums.'"

In addition to the hottest topic of '30% of new premiums,' the 'plan' also provides specific implementation measures from the perspectives of assessment period and assessment weight.

For example, extending the assessment period, implementing a long-term assessment of more than three years for the operational performance of state-owned insurance companies, where the annual assessment weight of net asset return does not exceed 30%, and the weight of indicators over a three to five-year cycle will not be less than 60%.

Zhou Jin pointed out that extending the assessment period means that the current year's profits obtained through short-term operations will contribute less to their assessment.

"From the perspective of insurance companies, it can better implement the concept of long-term value investment, focus on matching with long-term liabilities, and achieve sustainable operation across cycles," Zhou Jin stated. "This is beneficial for the large amounts of capital in the market to be unaffected by short-term volatility factors."

Similar market views point out that the continuous injection of large-scale mid-to-long-term capital is beneficial for improving the long-term trend of 'short bull and long bear' in the capital markets and optimizing the overall investment ecosystem of the capital market.

Wang Guojun stated, "The gradual accumulation of policies will eventually evolve from quantitative changes to qualitative changes."

However, at the same time, Wang Guojun also pointed out that whether the Capital Markets can truly achieve long-term healthy development hinges on the institutional reform of the Capital Markets, effectively protecting investors' rights and interests, and ensuring that funds from institutional investments can obtain necessary long-term returns.

"If the reform is not in place, the safety and profitability of Insurance funds cannot be guaranteed, it will be difficult to forcibly channel policyholders' funds into the Capital Markets to bear losses, which is both unfair and inefficient," said Wang Guojun.

Editor/Rocky