Core Viewpoint - In 2024, Xinhua Insurance achieved a record net profit of 26.229 billion yuan, marking a year-on-year increase of 201.1%, driven by a comprehensive development strategy and confidence in the Chinese economy [1][2] Financial Performance - Xinhua Insurance reported total premium income of 170.511 billion yuan, a 2.8% increase year-on-year, and a new business value of 6.253 billion yuan, up 106.8% [1] - The first-year premium value rate improved to 14.6%, an increase of 7.9 percentage points from 6.7% in 2023 [1] - The company’s investment scale exceeded 1.6 trillion yuan, growing by 21%, with total investment returns at 5.8% and comprehensive investment returns at 8.5%, both showing significant year-on-year growth [2] Strategic Focus - The company is prioritizing the transformation towards participating insurance products, aiming for at least 30% of new contracts to be in this category by 2025 [1][2] - Xinhua Insurance is balancing traditional and floating yield products to mitigate interest rate risk, focusing on products that require less reliance on interest rate spreads [2] - The company is enhancing its sales force's skills to ensure alignment with customer needs during the transition to participating insurance [3] Distribution Channels - The bancassurance channel contributed over 65% to the company's value, with a 12% year-on-year growth in premium income [4] - The company is committed to maintaining a stable and sustainable approach to its bancassurance channel, focusing on both scale and value [4] Investment Strategy - Xinhua Insurance has actively engaged in strategic investments, including acquiring stakes in various companies, which has positively impacted its investment operations [4][5] - The company emphasizes long-term and value-based investment strategies, aiming to enhance asset-liability management and ensure precise investment actions [5][6] - The 500 billion yuan pilot fund initiated with China Life has shown positive financial performance, enhancing capital efficiency and supporting the capital market [5][6]

Core Viewpoint - The article discusses the impact of the recent adjustment of the predetermined interest rate for life insurance, which has been lowered to 2.5% as of September 2024, and anticipates further reductions to 2.0% in the fourth quarter of 2025. This change is expected to affect premium levels and insurance company asset allocation strategies [1][2][3]. Group 1: Predetermined Interest Rate Adjustment - The predetermined interest rate was officially lowered to 2.5% in September 2024, with expectations of further reduction to 2.0% by the end of 2025. This adjustment is part of a dynamic mechanism linking predetermined rates to government bond yields [2][3]. - The adjustment aims to enhance investment returns for insurance companies and encourage the allocation of insurance funds into the capital market, with a target of 30% of new premiums being invested in the capital market starting in 2025 [2][6]. Group 2: Pricing and Premium Stability - The pricing of life insurance products will increase due to the lower predetermined interest rates, but the "stop-sale" strategy may help stabilize premium volumes, despite a less favorable outlook for the 2025 sales season [3][4]. - The life insurance profit model relies on interest spread, fee spread, and mortality spread, with fair premium pricing being crucial for maintaining balance between present value of premiums and claims [3]. Group 3: Asset Allocation and Investment Strategy - The current asset allocation of life insurance companies is heavily weighted towards fixed-income assets, with bonds constituting approximately 50.2% of total investments as of Q4 2024. The investment yield has been declining, increasing the risk of interest spread losses [4][5]. - Recommendations for asset allocation include increasing equity, alternative, and overseas asset investments while maintaining a dominant position in bond assets, particularly long-duration bonds [5][7]. Group 4: Long-term Implications of Policy Changes - The policy requiring 30% of new premiums to be invested in A-shares is expected to have limited short-term impact on insurance asset allocation but significant long-term effects, potentially increasing equity allocation to around 20% over five years [6]. - While increasing equity investments may reduce solvency ratios, the overall impact on insurance companies' solvency is anticipated to be limited due to the corresponding decrease in equity asset allocation [6].

Investment Rating - The industry investment rating is "Positive" and maintained [11] Core Viewpoints - The low interest rate environment poses challenges for insurance companies, leading overseas insurers to extend bond durations and increase equity allocations. In the short term, China's bond market shows a slight shortage of long-term supply, and the current liability structure of insurers is sensitive to net assets, which poses some resistance to increasing equity allocations. However, in the medium to long term, with ongoing policy support for insurance capital market entry and improvements in capital market infrastructure, the willingness and ability of insurers to allocate equity will gradually increase, alleviating investment pressure [2][9][10]. Summary by Sections Impact of Interest Rates on Insurance Companies - The valuation of A-share listed insurance companies is generally aligned with interest rates. Since 2011, the valuation of insurance companies has maintained a consistent relationship with bond yields, with only a few exceptions during specific periods [17][19]. - The decline in interest rates can lead to increased risks of interest spread losses due to duration mismatches, negatively impacting net assets and the intrinsic value of insurance companies [6][24]. Overseas Insurance Asset Allocation Strategies - U.S. insurers have significantly increased their equity allocations from 9.9% in 1980 to 30.8% in 2021, making equities the second-largest asset class after bonds. Additionally, the duration of bonds held by U.S. insurers has been extended, with the proportion of bonds with a remaining term of over 20 years increasing by 4.8 percentage points since 1997 [7][44][57]. - Japanese insurers have also extended bond durations and increased overseas asset allocations, with the overseas allocation rising from 12.8% in 2008 to 25% in 2023 [68]. - South Korean insurers have gradually increased overseas asset allocations from 2.8% in 1999 to 11.6% in 2022, while the bond proportion has decreased from 57.9% in 2013 to 46.2% in 2022 [8][77]. Policy Support for Equity Allocation - Policies encouraging long-term capital market entry are being implemented, aiming to enhance the willingness and ability of insurers to allocate equity. The goal is to have 30% of new insurance premiums invested in the stock market annually, which could potentially increase equity allocation by approximately 295.7 billion yuan if the proportion is adjusted to 60% [9][10][9].