Investment Rating - The report maintains a "Positive" investment rating for the insurance industry [4][49]. Core Insights - The report highlights that the interest spread risk for life insurance companies is manageable, despite concerns in a low interest rate environment. The average net investment yield for six major listed insurance groups has decreased from 4.7% in 2020 to 3.6% in 2024, leading to pessimism regarding the interest spread (investment yield minus liability cost) [4][8]. - The sensitivity of net assets to interest rates varies significantly among companies, with China Life and China Pacific experiencing a 13.6% and 7% decline in net assets, respectively, under a 50 basis point interest rate drop scenario [16][21]. - The cost of new policies has effectively decreased, with major companies like China Life and China Pacific seeing a reduction of approximately 50 basis points in liability costs to 2.4-2.5% in 2024 [4][36]. - The report anticipates a turning point for the cost of existing policies post-2028, as high-cost premium cash flows will cease, and companies like Xinhua are increasing equity allocations to hedge against interest rate declines [4][39]. Summary by Sections Section 1: Interest Rate Sensitivity - Long-term interest rates impact life insurance companies' net assets through three main pathways: duration gap between assets and liabilities, the effect on contracts with Variable Fee Approach (VFA), and the ultimate discount rate applied to policy contracts [13][14]. - Under a stress scenario of a 50 basis point decline in interest rates, the net asset impacts for major companies were calculated, showing varying degrees of sensitivity [16][21][27]. Section 2: New Policy Liability Costs - The liability costs for new policies have significantly decreased, with the report noting that the maximum liability rates for traditional and participating insurance products have been lowered, leading to a reduction in the break-even liability cost for major insurers [36][37]. - The report provides a detailed analysis of the break-even liability costs for major insurers from 2021 to 2024, indicating a downward trend in these costs [38]. Section 3: Existing Policy Costs - The report discusses the potential turning point for existing policy costs, with expectations that high-cost premium cash flows will diminish after 2028, thus reducing liability costs [39][40]. - Xinhua Insurance is highlighted for its strategy of increasing equity exposure to mitigate risks associated with declining interest rates, achieving significant investment returns [39][41].