Non-Banking Financial Sector - The average net investment return rate of six major listed insurance groups (China Life, Ping An, Taikang, Xinhua, PICC, and Taiping) decreased from 4.7% in 2020 to 3.6% in 2024, raising concerns about interest spread risk in a low-interest-rate environment [2][7] - Under pressure testing, the net asset decline for Taikang and China Life was 7% and 13.6% respectively when interest rates fell by 50 basis points, indicating that the risk is manageable [8][9] - The cost of new policies has effectively decreased, with the cost of liabilities for major companies like China Life and Taikang dropping approximately 50 basis points to 2.4-2.5% in 2024 [9][10] - The cost of existing policies may reach a turning point, with companies like Xinhua increasing equity ratios to hedge against interest rate declines [10][11] Agriculture, Forestry, Animal Husbandry, and Fishery - The latest pig price is 13.72 RMB/kg, with a slight decrease in average weight to 127.8 kg, indicating a short-term decline possibly due to policy-driven weight reduction [12][13] - The Ministry of Agriculture emphasizes high-quality development in the pig industry, focusing on reducing breeding stock and controlling new capacity [12][13] - The chicken industry faces a "high capacity, weak consumption" contradiction, with leading companies likely to increase market share [14][15] Machinery and Building Materials - The new Tibet Railway project marks the beginning of a significant engineering era, with expectations that cement companies in Xinjiang will benefit [22][23] - AI is driving increased demand for high-end electronic fabrics, with Low-CTE materials being particularly undervalued in the current market [23][24] - The report suggests a long-term growth potential for high-end electronic fabrics, recommending companies like Honghe Technology and Zhongcai Technology for investment [23][25] New Consumption - Huayi Group is expected to achieve a revenue of 12.661 billion RMB in H1 2025, reflecting a growth of 10.36% year-on-year, despite external macroeconomic challenges [26][27] - The company plans to distribute a cash dividend of 10 RMB per 10 shares, indicating strong dividend intentions [26][27] - The growth in orders is driven by the development of the sports industry and increased demand from strong brand orders [27][28] Transportation - Zhongyuan Expressway reported a revenue of approximately 3.105 billion RMB in H1 2025, a year-on-year increase of 13.17%, despite a decline in toll revenue in Q2 [30][31] - The company is optimizing its debt structure, which has significantly improved its expense ratio [31][32] - COSCO Shipping Specialized Carriers is expanding its fleet, with 27 new vessels expected to be delivered by 2026, supporting performance growth [34][35]

Core Viewpoint - The report from Huayuan Securities indicates that the sensitivity of high-quality life insurance companies' net assets to interest rates is becoming manageable, especially with the regulatory reduction of preset interest rates, leading to a significant decrease in the break-even cost of liabilities for new policies in 2024 [1][3]. Group 1: Impact of Long-term Interest Rates - Long-term interest rates affect life insurance companies' net assets through three main paths: the gap between asset and liability durations for traditional insurance, the impact on contracts with Variable Fee Approach (VFA) characteristics, and the ultimate discount rate applied to policy contracts after 40 years [1]. - For traditional insurance, the gap between asset and liability durations directly influences net assets; for VFA products, a decline in long-term rates can initially be absorbed by the Contractual Service Margin (CSM) until rates drop to a critical level, at which point CSM may turn negative, reflecting losses in insurance service expenses [1]. Group 2: Variability in Companies' Sensitivity to Interest Rates - There is significant variability in how different companies' net assets respond to interest rate declines due to factors such as asset classification, liability product characteristics, duration of bond investments, and minimum guaranteed rates [2]. - Under a stress test scenario where long-term rates decline by 50 basis points at the end of 2024, the net asset declines for China Pacific Insurance and China Life are projected at 7% and 13.6%, respectively, indicating manageable risk levels [2]. Group 3: Decrease in Liability Costs for New Policies - The break-even liability costs for new policies have effectively decreased, with the regulatory guidance reducing the upper limit of preset interest rates for traditional insurance from 3.5% to 2.5% and for participating insurance from 2.5% to 2.0% [3]. - In 2024, the break-even liability costs for China Life and China Pacific are expected to decrease by approximately 50 basis points to around 2.4-2.5%, while Xinhua's costs have dropped by 94 basis points to 2.98% [3]. Group 4: Potential Turning Point for Existing Policies - The cost of existing policies may reach a turning point, with the break-even liability costs for major companies projected between 2.2% and 3% at the end of 2024 [4]. - As the premium cash flow from high-cost policies ceases after the end of the payment period (typically 3-5 years), the industry anticipates a reduction in liability costs post-2028 [4]. - Xinhua has opted to increase its equity allocation to hedge against interest rate declines, effectively capitalizing on opportunities in the equity market in 2024 [4].

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].