Changjiang Securities·2025-06-19 13:48Investment Rating - The report maintains a "Positive" investment rating for the insurance industry [4]. Core Insights - The report highlights that the cost of liabilities for leading listed insurance companies is improving, with China Life, China Pacific Insurance, and New China Life showing year-on-year improvements of 53 basis points, 52 basis points, and 94 basis points respectively for new business liability costs in 2024 [11]. - The report discusses the "interest spread loss" risk faced by life insurance companies due to mismatched asset and liability durations, particularly in a declining interest rate environment [20][23]. - The valuation of the insurance sector is influenced by various factors, including investment returns, interest rates, and premium growth, with current market valuations reflecting pessimistic assumptions about long-term investment returns [43][44]. Summary by Sections Interest Spread Loss Risk - Life insurance companies face inherent "interest spread loss" risks due to the mismatch between asset and liability durations, particularly when interest rates decline [20][23]. - The report indicates that the overall life insurance industry is experiencing a situation where asset durations are shorter than liability durations, leading to potential interest spread losses as market returns decrease [23]. Valuation of Insurance - The valuation of the insurance sector is determined by several factors, including the performance of equity markets, interest rates, and premium growth [36]. - The report suggests that the current market valuations imply that major insurance companies like Ping An, China Pacific, and New China Life are expected to achieve long-term investment returns of less than 3% [43]. - Different perspectives on valuation are discussed, including pessimistic views that assign zero or negative valuations to existing business due to the likelihood of interest spread losses, and optimistic views that consider future business growth potential [55].