Core Insights - The insurance industry in China has shown resilience and progress in the first half of 2025, with total assets exceeding 39.2 trillion yuan and premium income growing by 5.1% year-on-year [2][10] - The industry is navigating challenges posed by low interest rates, stringent regulations, and new accounting standards, which present both risks and strategic opportunities for structural adjustments [1][10] Asset Management - As of the end of Q2 2025, the total investment balance of insurance companies surpassed 36 trillion yuan, marking a 17.4% increase year-on-year [2] - Bonds remain the primary investment choice for insurance funds, with a bond investment balance of 17.87 trillion yuan, accounting for 51.9% of total investments [3] - Stock investments have gained traction, with insurance companies' equity investments exceeding 3 trillion yuan, reflecting a strategic shift towards equities due to low fixed-income returns [3][4] Premium Income and Claims - In the first half of 2025, insurance companies reported original premium income of 3.7 trillion yuan, with significant recovery in life insurance products such as dividend, annuity, and health insurance [2][5] - Claims and benefits paid by insurance companies reached 1.3 trillion yuan, a 9% increase, indicating a deepening of the industry's protective functions [5][6] Solvency and Regulatory Environment - The overall solvency adequacy ratio for the insurance industry stood at 204.5% as of Q2 2025, well above regulatory requirements [8][10] - Some smaller insurance companies face solvency pressures, necessitating swift action in capital replenishment and risk management to avoid stricter regulatory measures [8][10] Strategic Developments - The industry is increasingly focusing on digitalization and service optimization to enhance claims efficiency and customer trust [7] - Insurance companies are exploring diversified investment strategies, including the establishment of private equity funds, to adapt to market conditions and regulatory changes [4][9]

1. Report Industry Investment Rating No relevant content provided. 2. Core Views of the Report - In the past three years, the re - allocation of insurance funds may have been an important factor in the flattening of the interest rate curve. When the supply of high - yield assets such as non - standard assets shrank, insurance funds favored ultra - long - term interest - rate bonds [5][28]. - The impact of the "premium开门红" on the bond market has weakened. Premium income is not the only factor determining the rhythm of insurance bond allocation. Insurance institutions often time their bond allocations, and high new premiums do not necessarily lead to high bond - allocation scales [5][34]. - After the reduction of the scheduled interest rate, the cost of new insurance liabilities will decrease, and the criteria for high - dividend assets to enter the pool may be lowered. Insurance may gradually focus on overseas income - generating assets [6][61]. - Due to the change in accounting standards and the pursuit of risk - return ratio and profit - smoothing mechanisms, insurance funds prefer high - dividend assets. Under the new accounting standards, most bonds are placed in the FVOCI account, and the trading attributes and the characteristic of realizing profits at the end of the quarter have been amplified [6][86]. - The "Solvency II" has higher requirements for the duration and transparency of insurance assets, but for most insurance institutions, the level of risk factors alone is difficult to affect the allocation preference of insurance funds [6][118]. - The net secondary - market purchases of treasury bonds, policy - bank bonds, local government bonds, and financial bonds (excluding policy - bank bonds) by insurance institutions are highly correlated with the actual changes in their holdings, which is worthy of tracking [6]. 3. Summary According to the Table of Contents 3.1 In recent years, insurance funds may have been an important factor in the flattening of the interest rate curve - Premiums are an important source of insurance funds. The long - term nature of insurance liabilities makes insurance funds prefer long - term assets. The proportion of life insurance premiums in total premiums has increased from 52% in 2022 to 56% in 2024 [25]. - When the supply of high - yield non - standard assets shrank, insurance funds re - allocated to ultra - long - term interest - rate bonds, resulting in the flattening of the interest rate curve. From 2022Q2 to 2025Q1, the proportion of non - standard assets in total insurance funds decreased from 26.9% to 19.3%, and the term spread between 30Y and 10Y treasury bonds changed from "mean - reversion" to "downward - trend" after 2020 [28]. 3.2 The impact of the "premium开门红" on the bond market has weakened, and currently, insurance asset allocation values the risk - return ratio more - In the past, due to the lack of long - term government bond issuance in January, insurance funds flowed into the secondary market in the early part of the year. However, in recent years, the supply of long - term government bonds in the primary market has increased, and the influence on the secondary market has weakened [34]. - Premium income is not the only factor determining the rhythm of insurance bond allocation. The reasons include sufficient primary - market supply, relatively high deposit returns, and the importance of timing bond allocation to increase returns in a low - interest - rate environment [41]. - Before the reduction of the scheduled interest rate, insurance institutions usually try to boost premiums but time their bond allocations. Although the reduction of the scheduled interest rate on August 31, 2025, was greater than expected, the "premium - boosting" phenomenon was not obvious, and the preference for bond market allocation weakened. After the reduction, the cost of new insurance liabilities decreased, and the attractiveness of 30Y treasury bonds and 20Y and above local government bonds increased when their YTM was higher than 2% [51][61]. - Insurance may focus on overseas fixed - income assets. The expansion of the scope of eligible investors for the Southbound Bond Connect is imminent, which may increase the proportion of overseas investment by insurance institutions and help improve investment returns [64]. 3.3 Stock - bond rebalancing and the switch between old and new accounting standards make high - dividend assets more popular - As the domestic long - term bond yield may remain low for a long time, insurance companies may seek high - yield fixed - income assets overseas and increase their allocation of equities [73]. - Under the new accounting standards, most bonds are placed in the FVOCI account, and the trading attributes and the characteristic of realizing profits at the end of the quarter have been amplified. Insurance institutions prefer to buy high - dividend assets and re - classify them into the FVOCI account to smooth profit fluctuations [86][97]. - High - dividend equity assets can support investment returns when bond yields are low. Their full - return index has performed better than ultra - long - term treasury bonds since 2019 [103]. 3.4 "Solvency II" has higher requirements for the duration and transparency of insurance assets - Since 2023, the solvency adequacy ratio of insurance institutions has been steadily increasing. As of 2025Q1, the comprehensive solvency adequacy ratio of Chinese insurance companies reached 204.5%, and the core solvency adequacy ratio reached 146.5% [110]. - "Solvency II" requires a higher degree of matching between asset and liability durations. If the asset duration is less than the liability duration, the minimum capital for interest - rate risk will increase rapidly under stress - testing scenarios [113]. - Holding assets such as trusts, real estate, and non - standard assets will increase the risk factor, raise the minimum risk capital, and lower the solvency adequacy ratio. However, for most insurance institutions, the level of risk factors alone is difficult to affect their asset - allocation preferences [118]. 3.5 Insurance focuses on primary - market subscriptions and supplements with secondary - market transactions 5.1 Which types of bonds in the cash - bond trading data of insurance institutions are worthy of high - frequency tracking - The net secondary - market purchases of treasury bonds, policy - bank bonds, local government bonds, and financial bonds (excluding policy - bank bonds) by insurance institutions are highly correlated with the actual changes in their holdings. In 2024, insurance institutions showed more obvious trading behaviors in the secondary market [119]. 5.2 Rules for insurance trading of treasury bonds - Insurance institutions tend to increase their net purchases of long - term treasury bonds at the end of the quarter and sell them at the beginning of the next quarter. Since 2023, their net purchases of 30Y treasury bonds have increased significantly [125]. - Although there are obvious rules for insurance institutions' trading of treasury bonds at the end of the quarter, it is difficult for a single type of investor to affect the bond - market trend [136]. 5.3 Insurance trading of local government bonds: The spread can be used as a leading indicator - The supply pressure of local government bonds affects the spread, which in turn affects the net secondary - market purchases of local government bonds by insurance institutions. The spread of local government bonds is an important indicator for judging the net - buying power of insurance institutions in the secondary market. When the spread increases by 5 - 6bp within a month, the net - buying scale of insurance institutions may increase significantly [138]. 5.4 Insurance trading strategy for Tier 2 and perpetual bonds - Since May 2024, insurance institutions have continuously sold medium - and long - term Tier 2 and perpetual bonds because these bonds cannot pass the cash - flow test and most are re - classified into the FVTPL account, which has a greater impact on current profits [152].

1. Report Industry Investment Rating There is no information provided regarding the report industry investment rating in the given content. 2. Core Viewpoints of the Report - The scale of insurance bond allocation has increased significantly, and the influence of insurance institutional behavior on the bond market trend has become more prominent, making the research on its fund operation and bond - allocation behavior necessary [1]. - Insurance funds are mainly regulated in terms of investment scope and proportion, asset - liability matching, solvency, and insurance asset management. The investment characteristics of insurance funds in 2025 present new challenges such as increased risk of interest spread loss and a large asset - liability duration gap [2][4]. - Insurance institutional behavior affects bond investment in aspects such as pricing power, seasonality, and bond - allocation logic and point selection [6][9]. 3. Summary According to Relevant Catalogs 3.1 Insurance Funds Bond - Allocation Overview - As of the end of 2024, the scale of insurance funds' bond allocation reached 16.32 trillion yuan, accounting for 9.2% of the balance of China's bond market custody volume, ranking fourth in the market. From 2022 - 2024, the monthly year - on - year growth rate of insurance bond - allocation increased from 14% to around 30%, and the bond - allocation scale grew from 9 trillion yuan to 16 trillion yuan. Insurance prefers local bonds and treasury bonds in bond - allocation [13][15]. 3.2 Main Regulatory Framework of Insurance Funds 3.2.1 Insurance Funds: Investment Scope, Proportion, Asset - Liability Matching, and Solvency Requirements - **Investment Scope and Proportion Restrictions**: China has formed a multi - level proportion regulatory framework for insurance funds. In recent years, the restrictions have been gradually relaxed, and the allocation proportion is linked to the solvency of insurance companies. For example, the upper limit of the allocation proportion of equity assets is related to the comprehensive solvency ratio [22]. - **Asset - Liability Matching Requirements**: Since 2017, the regulatory system for insurance asset - liability management has been continuously improved. Insurance companies should divide "ordinary accounts" and "independent accounts" for asset - liability management. Asset - liability matching includes term structure matching, cost - return matching, and cash - flow matching [25][26]. - **Solvency Requirements**: China is currently under the "Second - Generation Solvency" Phase II regulatory system. Solvency regulatory indicators include core solvency adequacy ratio, comprehensive solvency adequacy ratio, and risk comprehensive rating. Since the switch to the new rules in 2022, the solvency regulatory indicators of insurance companies have been under pressure [28][29][32]. 3.2.2 Insurance Asset Management: "1 + 3" Regulatory Framework and Dual - Track Regulatory System - Insurance asset management companies are subject to dual - track regulation based on the source of funds. Insurance asset management products implement a "1 + 3" institutional framework [34]. 3.3 Insurance Funds Operation 3.3.1 Liability Side: Premium Income is the Main Source of Insurance Self - Operation and Asset Management Funds - **Self - Operation**: Premium income is the most important source of insurance funds. In 2024, the insurance industry's premium income was 5.7 trillion yuan, with a year - on - year increase of 11.15%. The premium income of life insurance companies increased significantly, which supported the balance of insurance funds' use [38]. - **Asset Management**: As of the end of 2023, the total scale of funds managed by 34 insurance asset management companies was 30.11 trillion yuan. The proportion of bank funds increased from 6.75% at the end of 2021 to 14.92% at the end of 2023, but it may be affected by regulatory policies in 2024 [42][48][52]. 3.3.2 Asset Side: The Proportion of Bond Allocation Continues to Rise, and the Investment Income Performance in 2024 is Good - **Large - Category Asset Allocation**: There are two ways to obtain information on the large - category asset allocation of insurance funds: the annual survey of the Insurance Asset Management Association and the quarterly disclosure of the National Financial Regulatory Administration. Bonds are the most important allocation variety. The proportion of bond allocation in life insurance and property insurance companies has increased in recent years [55][65][68]. - **Bond Allocation**: Local bonds have the highest actual allocation value, and their proportion has continued to rise. Insurance has a low - leverage and low - risk - preference business model, earning stable returns mainly by extending the duration [71]. - **Investment Income Performance**: In 2024, the annualized financial investment yield of insurance companies was 3.43%, and the annualized comprehensive investment yield was 7.21%, increasing by 1.2 and 3.99 percentage points respectively compared with 2023 [3]. 3.4 New Investment Features of Insurance Funds in 2025 - Insurance companies' break - even yield requirements have increased, while the investment yield is under pressure, increasing the risk of interest spread loss. The asset - liability duration gap in the insurance industry is large, and the problem of "long - term funds short - term allocation" is still prominent [4]. 3.5 Impact of Insurance Institutional Behavior on Bond Investment - **Pricing Power**: According to the net secondary - market bond purchases of various institutions in 2024, insurance has pricing power over 30 - year treasury bond new issues, non - active ultra - long - term interest - rate bonds, and long - term credit bonds [6][9]. - **Seasonality**: Insurance has obvious liability - driven characteristics. Due to the "good start" of premiums, insurance bond - allocation also has seasonality, with larger bond - allocation scales generally in March and December [6][9]. - **New Considerations**: Insurance self - operation funds are evaluated based on absolute returns. Considering the cost of the liability side, there may be a desirable allocation point. However, due to the decline of the current interest - rate center, it is difficult to reach this point, so insurance funds may look for phased highs for allocation, protecting the upper limit of the 30 - 10 - year treasury bond yield spread [6][9].

Core Viewpoint - The article discusses the evolution and current state of insurance fund investment regulation in China, emphasizing the need for a balance between strict regulation and the flexibility to support the real economy and stabilize capital markets [3][5][18]. Group 1: Current Regulatory Landscape - The regulatory framework for insurance fund investment has evolved since 2010, with significant changes in investment categories and their respective limits [5][19]. - In 2020, the China Banking and Insurance Regulatory Commission (CBIRC) began to relax regulations on equity and real estate investments, allowing for more autonomy in investment decisions [5][19]. - The current regulatory system is primarily based on solvency supervision, with a focus on the "Solvency II" framework, which integrates asset and liability management [6][19]. Group 2: Comparison with International Practices - The article compares China's insurance fund regulation with that of the US, UK, and Japan, highlighting that the US employs strict legislative measures, while the UK adopts a principle-based approach with less direct regulation [4][16]. - Japan has transitioned from strict proportional regulation to a more relaxed framework, allowing companies to make independent investment decisions [11][14]. - The regulatory practices in these countries reflect their unique economic contexts and historical developments, influencing their approaches to insurance fund management [16][17]. Group 3: Future Outlook - The article suggests that China should maintain its investment proportion regulations while gradually relaxing investment scope and limits to better serve the real economy [18][19]. - Future policies are expected to promote innovation in insurance fund investment, allowing for broader asset categories and higher investment ratios in venture capital [18][19]. - The potential for parallel implementation of investment proportion and solvency regulations is highlighted, with a focus on differentiated supervision based on the type of insurance company [19].