2 1 Shi Ji Jing Ji Bao Dao·2025-11-10 08:48Core Viewpoint - The insurance industry is facing asset-liability matching pressures due to declining interest rates and an "asset shortage," prompting companies to seek long-term equity investments, particularly in undervalued bank stocks, to achieve stable returns and balance sheet improvements [1][3][12]. Group 1: Long-term Equity Investment Strategy - Insurance companies are increasingly turning to long-term equity investments as a strategy to achieve stable returns and match their liabilities [3][12]. - This strategy has sparked controversy, as it is seen as a means to smooth out volatility and achieve stable return on equity (ROE) and dividend returns, but some companies misuse it as a financial engineering tool to mask operational pressures [3][4][15]. - The shift to long-term equity investments is driven by the need for stable, high returns in a low-interest-rate environment, where traditional fixed-income assets are yielding insufficient returns [12][13]. Group 2: Accounting Practices and Implications - The accounting treatment of long-term equity investments allows insurance companies to recognize significant profits through accounting adjustments, particularly when investing in undervalued stocks [5][9]. - By applying the equity method of accounting, companies can report initial investment costs based on the fair value of the net assets of the investee, leading to inflated profits on their financial statements [7][10]. - This practice can create a disconnect between reported profits and actual cash flows, raising concerns about the sustainability of these earnings [11][19]. Group 3: Risks and Challenges - The reliance on long-term equity investments as a financial strategy can lead to systemic distortions in profit, net assets, and risk disclosures, potentially masking underlying financial health issues [4][20]. - Companies face pressures from regulatory requirements and internal assessments of solvency and profitability, which may drive them to prioritize short-term financial reporting over long-term strategic investments [14][15]. - The misuse of long-term equity investments can result in significant risks, including mismatches in capital and liquidity, potential valuation declines, and loss of market trust [20][21]. Group 4: Recommendations for Improvement - To mitigate the risks associated with long-term equity investments, regulatory bodies should establish clearer standards for recognizing significant influence and tighten rules around accounting for goodwill and fair value assessments [21][22]. - Insurance companies should enhance internal controls and focus on sustainable cash flow as a primary measure of investment success, rather than relying on one-time accounting gains [22]. - Expanding investment opportunities into infrastructure REITs, preferred stocks, and other long-term assets can help reduce dependence on equity investments and improve asset-liability matching [22].