On August 6, insurance stocks were lower across the board.
As of the close, the insurance sector index (BK0474) was reported at 932.74 points, down 3.11%, with a turnover of 5.573 billion yuan and a turnover rate of 0.30%. Among the individual stocks in the sector, the top 5 stocks with the biggest declines were: Chinese Life reported 30.36 yuan, down 6.06%; China Taibao reported 27.45 yuan, down 5.73%; Xinhua Insurance reported 30.26 yuan, down 2.98%; Ping An of China reported 40.90 yuan, down 2.62%; Chinese Insurance reported 5.61 yuan, down 1.23%.
Image source: Oriental Fortune Network
In terms of Hong Kong stocks, China Taibao (02601) fell 11.49%, Chinese Life (02628) fell 3.59%, China Taiping (00966) fell 2.75%, AIA (01299) fell 1.71%, and China Property Insurance (02328) fell 1.69%.
A number of analysts said that the sharp decline in insurance stocks may be related to the recent news that "the scheduled interest rate of life insurance will be lowered".
Regarding today's sharp fluctuations in A+H shares, relevant people from China Pacific Insurance said that the company's fundamentals are normal and they are paying attention to the stock price trend. At present, it is believed that changes in overseas markets (fluctuations in Japanese and Korean stock markets) are one of the more important reasons for the decline in stock prices.
Some people in the industry pointed out that there is no obvious negative for insurance stocks, in fact, most of the stocks in the sector are still in the red market today, so combined with the amplification of trading volume, the overall downturn in today's sector and some funds choose to leave the market or have a certain relationship.
Life insurance predetermined interest rate falls below 3%
After a year, the scheduled interest rate for life insurance will be lowered again to 2.5%, which means that the scheduled interest rate for life insurance will return to the level of 1999.
On August 2, the State Administration of Financial Supervision and Administration issued the Notice on Improving the Pricing Mechanism of Life Insurance Products. It also clearly reduces the predetermined/guaranteed interest rates of ordinary insurance products, participating insurance products and universal insurance products. From September 1, 2024, the predetermined interest rate of newly filed general insurance products will be capped at 2.5%, and the interest rate of relevant liability reserves will be implemented at 2.5%; The sale of general insurance products with predetermined interest rates exceeding the upper limit will be discontinued.
In addition, the "Notice" also proposes for the first time to establish a mechanism for linking predetermined interest rates with market interest rates and dynamic adjustments, deepening the "integration of newspapers and banks", and strengthening the refined and scientific management of products in different channels.
Some analysts believe that the recent rapid decline in interest rates and the greater uncertainty on the sales side after the scheduled interest rate cut have exacerbated market concerns.
CITIC Securities said that for insurance companies, the reduction of the predetermined interest rate guarantee interest rate is conducive to controlling the cost of the liability side, but it will also reduce the attractiveness of the product accordingly, and it is expected that the dividend insurance may be more favored by policyholders in the future.
Everbright Securities said that the scheduled interest rate switch will inevitably trigger the market's "speculation and suspension of sales". In the medium term, after the new product is fully implemented, the demand overdraft caused by the two rounds of product switching operations since last year may cause a certain disturbance to subsequent sales.
Dealing with the risk of interest rate loss spreads
On July 31 last year, the scheduled interest rate was lowered from 3.5% to 3%. After nearly a year, why is the scheduled interest rate lowered again?
Analysts believe that this is mainly due to the regulation to ease the risk of interest margin loss in the insurance industry.
In the context of declining interest rates, the cost of liabilities of insurance companies continues to be high, which brings huge pressure to the investment side of insurance companies. According to the data of the State Administration of Financial Supervision and Administration, since the third quarter of last year, the annualized financial rate of return on insurance funds of life insurance companies has fallen below 2%, and the annualized financial rate of return in the third and fourth quarters of last year and the first quarter of this year were 2.93%, 2.29% and 2.12% respectively, showing a trend of declining quarter by quarter.
In the future era of low interest rates, predetermined interest rates will "go with the market".
The "Circular" mentions that it is necessary to establish a mechanism for linking the predetermined interest rate with the market interest rate and dynamic adjustment. The predetermined interest rate benchmark value is determined by reference to long-term interest rates such as the loan prime rate for loans with a maturity of more than 5 years, the benchmark interest rate for 5-year time deposits, and the yield to maturity of 10-year treasury bonds, which is issued by the Insurance Association. The linkage and dynamic adjustment mechanism shall be reported to the State Administration of Financial Supervision and Administration. After the trigger conditions are met, each company adjusts the product pricing in a timely manner in accordance with the principle of marketization.
Everbright Securities said that in the long run, on the one hand, with the repeated reduction of bank deposit interest rates, the current 1Y/2Y/3Y/5Y deposit listed interest rates of the five large banks are 1.35%/1.45%/1.75%/1.80% respectively, and the listed interest rate as a whole has entered the era of "1%" At the same time, some products have other insurance liabilities such as personal protection, and insurance companies can also create differentiated competitive advantages through the "insurance + service" model, thereby enabling product sales. On the other hand, the dynamic adjustment mechanism of predetermined interest rates will significantly help insurance companies to adjust debt costs in a timely manner in accordance with market changes, which will help the industry improve its asset and liability management level and effectively resolve the risk of interest margin loss in the long run.
Long-term participating insurance will be favored
Some analysts believe that long-term dividend insurance with a guaranteed bottom and floating income may become the main direction of insurance companies in the future.
The "Notice" pointed out that the development of long-term participating insurance products is encouraged. For participating insurance products with a predetermined interest rate not higher than the upper limit, the cash value can be calculated according to the actuarial regulations of ordinary insurance products.
In addition, the "Notice" clarifies that for participating insurance products and universal insurance products, each company should highlight the insurance protection function of the product when demonstrating the benefits of the policy, emphasize the interest rate risk sharing and investment income sharing mechanism of the account, help customers fully understand the characteristics of the product, balance the relationship between the predetermined interest rate or the minimum guaranteed interest rate and the floating income, the demonstration benefit and the dividend fulfillment ratio, and set the demo interest rate according to the asset allocation characteristics of the account and the differentiation of the expected investment rate return, so as to reasonably guide customer expectations. When disclosing the fulfillment ratio, the calculation should be based on the demo interest rate used at the time of product sales.
It is worth noting that the fulfillment ratio of participating insurance has declined sharply in 2023. As of August 2, a total of 52 insurance companies disclosed the fulfillment ratio for 2023, involving 2,068 products, and the arithmetic average of the fulfillment ratio was 47.4%, a decrease of about 53% compared with 101.9% last year.
Is participating insurance still worth buying? The answer is self-explanatory. In the era of bank deposits with the prefix "1", the dividend insurance with a guaranteed return of 2% is still competitive. Some institutions have calculated that even if the fulfillment rate of participating insurance is only 35.7%, the theoretical rate of return of customers can still reach 3%. This means that in the past year, the yield of most participating insurance products is slightly better than that of bank wealth management.
Professor Zhu Junsheng, a member of the Expert Committee of the China Insurance and Social Security Research Center of Peking University, believes that the sustainability of the dividend fulfillment ratio is based on the company's long-term investment ability. In the current market environment, it is important for the industry to improve its ability to manage participating insurance. The challenges of participating management include dividend management, maintaining reasonable customer expectations and macroeconomic uncertainties. How to smooth the reserve fund of the account, how to formulate the annual dividend policy, and how to take into account the competition of the industry and the interests of the company are still challenges for insurance companies. At the same time, insurers need to manage customer expectations without over-raising or dampening expectations. Macroeconomic uncertainties will affect the investment returns of the insurance market, and insurance companies need to convey their knowledge of the market to customers in a timely manner.
Industry insiders pointed out that participating insurance products will still have a certain attractiveness in the future. Although there is no guarantee that some unrealistic high-yield expectations will be met, it is reasonable to estimate that the annualized rate of return that customers can actually get is still expected to reach the range of 2.5% to 3%, which is a relatively stable choice with certain value-added potential compared to other pure savings or low-risk wealth management products in the current low-interest rate market environment.
CITIC Securities believes that after the implementation of the new regulations on asset management, affected by factors such as declining returns on risk assets and low interest rates, the gap between supply and demand of similar fixed income products in the market will exist for a long time, and life insurance products represented by dividend insurance will still be the mainstream direction of product development in the future. At the same time, participating insurance will change the disadvantages of the traditional insurance business model and achieve a win-win situation for customers, shareholders and channel parties. (This article was first published on the Titanium Media APP, author | Yan Fanyao, editor - Liu Yangxue)
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