Report Industry Investment Rating No information provided in the given content. Core Viewpoints of the Report - The report focuses on the asset allocation strategies of US banks and life insurance companies during the low - interest rate period and their responses to interest rate reversals, and provides implications for the Chinese financial industry [1][9]. - US banks contract high - risk exposures, increase low - risk asset holdings, and adjust the structure of securities investment accounts according to different interest rate stages. The bankruptcy of Silicon Valley Bank is a typical case of liquidity crisis caused by maturity mismatch [1][2]. - US life insurance companies optimize asset allocation in different accounts, increase equity - based asset investments, lengthen bond durations, and lower bond credit ratings to obtain higher returns [3][5]. Summary by Directory 1. Low - interest Rate Period of US Bank Asset Allocation 1.1 US Bank Asset - side Allocation Situation - US banks contract high - risk exposures, reduce high - risk asset holdings (such as real estate construction and development loans), and increase low - risk asset holdings (such as Treasury bonds). The proportion of real estate construction and development loans dropped from 8.0% in 2007 to 2.9% in Q2 2012, while the proportion of Treasury bond holdings increased during several periods [10]. - In terms of account structure, in the early stage of low - interest rates, the proportion of securities - related assets increased, but the proportion of income decreased. In the later stage, the scale of loan business increased. The proportion of loan - related assets decreased from 61% in Q2 2007 to 55% in Q4 2010 and then gradually recovered [13]. - In securities investment accounts, the proportion of AFS accounts increased in the early stage of low - interest rates and shifted to HTM accounts in the later stage. From 2013 - 2017, the average HTM holding ratio increased by 11.8 percentage points compared with 2009 - 2012, and in 2022, it increased by 15.9 percentage points compared with 2020 - 2021 [16]. 1.2 Silicon Valley Bank Event Occurrence - In 2023, Silicon Valley Bank went bankrupt due to its aggressive business strategy and loopholes in interest rate risk management. During the low - interest rate period, it adopted a single - variety, long - term asset allocation model, ignoring potential interest rate risks. By the end of 2022, the total investment in securities - related assets was as high as $120.1 billion, accounting for 57% of assets [17][20]. - During the rapid interest rate increase period, the negative convexity of MBS lengthened the duration passively, and the accounting treatment concealed the real risk. As of the end of 2022, the unrealized loss of HTM assets was as high as $15.16 billion [29]. - The early business model had a maturity mismatch between assets and liabilities, and the structural defects on the liability side amplified the crisis. In 2023, due to increased depositor withdrawal demand and difficulty in attracting deposits, it announced the sale of $21 billion of AFS and recognized an $1.8 billion loss, leading to a run and being taken over by the FDIC [31]. 1.3 Silicon Valley Bank Event Disposal and Systemic Risk - After the Silicon Valley Bank event, the treatment measures included takeover, deposit insurance, liquidity support, and mergers. The FDIC estimated that the risk disposal would cost about $20 billion to the US Deposit Insurance Fund [34]. - There are systemic risks during the rapid interest rate increase period in the US. Some small and medium - sized US banks are more affected by spill - over effects, such as Signature Bank and First Republic Bank. A large amount of deposits flowed out of small US banks after the event [35][36]. 2. Low - interest Rate Period of US Life Insurance Asset Allocation 2.1 Optimize Asset Allocation in Different Accounts and Increase Equity - based Asset Investment in Independent Accounts - US life insurance funds are managed through general accounts and independent accounts. In the general account, the proportion of bond investments decreased from about 72.4% in 2010 to 63.8% in 2023, while in the independent account, the average stock investment ratio was about 78.58% from 2009 - 2021 [44][45]. 2.2 Expand the Proportion of Corporate Bonds and Lengthen Asset Duration to Narrow the Duration Gap - US life insurance companies increase the proportion of investment - grade corporate bonds (AAA) and show a characteristic of lengthening bond durations. The weighted average duration of bond investments increased from 10.7 years in 2007 to 12.265 years in 2022 [50]. 2.3 Obtain Risk Premium Returns by Lowering Bond Credit Ratings - US life insurance companies lower bond credit ratings to obtain risk premium compensation. The proportion of Class 1 bonds decreased from 68.15% in 2005 to 59.10% in 2023, while the proportion of Class 2 bonds increased from about 26.11% to 35.88% [59]. 2.4 Increase the Proportion of Independent Account Products on the Liability Side - The independent account's liability side consists of investment - type policies. As interest rates decline, the investment scale of independent accounts expands, and the stable management fee income can support the investment profits of life insurance companies [67]. Implications for China - Banks should contract high - risk exposures, increase low - risk asset holdings, and adjust the structure of securities investment accounts according to interest rate trends [4][68]. - Banks should pay attention to the stability of asset - liability structures, use risk management tools such as stress tests, and make contingency plans for extreme situations [4]. - Financial risk disposal should be prompt and forceful. - Insurance companies should optimize asset allocation in different accounts, appropriately increase equity - based asset investments, and obtain higher returns by lengthening bond durations and lowering bond credit ratings [5][70].

Core Viewpoint - Multiple local government guidance funds are extending their duration to meet the investment needs of technological innovation, with many extending to over 10 years, and some even reaching 15-20 years [1][2]. Group 1: Government Fund Initiatives - Shanghai has established a future industry fund with a total scale of 10 billion yuan, featuring a 15-year duration that can be extended by 3 years [3][4]. - Guangdong's second phase of the semiconductor and integrated circuit industry equity investment fund has a duration of 17 years, with an initial capital of 11 billion yuan [5]. - Shenzhen is also extending the duration of its guiding funds, with a new 2 billion yuan technology innovation seed fund extending its duration from 5-10 years to 15 years [6]. Group 2: Policy Implications - The extension of fund durations aims to address the "mismatch" between capital cycles and industry cycles, particularly for long-cycle industries like hard technology [9]. - The shift in fund duration reflects a correction in the ecosystem of RMB funds, which previously had short durations due to the liquidity demands of early-stage investors [10]. - The adjustment in government fund assessment logic will focus more on long-term industry value rather than short-term returns, indicating a shift towards nurturing industry development [11]. Group 3: Economic Context - Government funds are positioned to provide counter-cyclical adjustments during economic transitions, stabilizing industry expectations when market capital is hesitant [12]. - The effectiveness of these initiatives will depend on the gradual improvement of supporting mechanisms and will require time for evaluation [13].

Core Viewpoint - The Asian life insurance industry is facing a crisis, with Taiwan Life Insurance reporting a significant increase in losses due to currency fluctuations and high exposure to foreign currency assets [1][4]. Group 1: Financial Impact - Taiwan Life Insurance reported a loss of 28.3 billion New Taiwan Dollars (approximately 94.5 million USD) in May, doubling from April's figures [1]. - The Taiwanese life insurance sector has accumulated foreign exchange losses of 118.3 billion New Taiwan Dollars (approximately 4 billion USD) in the first four months of the year [1]. - Despite a net income of 1.45 billion New Taiwan Dollars in the first five months, the substantial loss in May has raised concerns about the long-term stability of Taiwan Life Insurance [4]. Group 2: Asset Allocation and Risks - Approximately 70% of Taiwan's life insurance companies' investment assets are denominated in foreign currencies, primarily in USD bonds, making them vulnerable to currency appreciation [4]. - The rapid appreciation of the New Taiwan Dollar has significantly reduced the value of these USD-denominated assets, directly impacting the companies' net worth [4]. - The life insurance sector in Asia is collectively facing substantial paper losses, with Japan's four major life insurers reporting a record paper loss of 8.5 trillion Japanese Yen (approximately 60 billion USD) in the last fiscal year, a threefold increase year-on-year [6]. Group 3: Industry Response and Regulation - In response to the currency crisis, major life insurance companies in Taiwan, including Cathay Life and Fubon Life, are increasing currency hedging operations to mitigate the impact of exchange rate fluctuations [8]. - The three largest life insurance companies in Taiwan plan to utilize new regulations to flexibly adjust reserve allocations to alleviate financial pressure [8]. - Regulatory authorities are considering allowing insurance companies to report performance using a rolling average exchange rate to smooth out the impact of sudden fluctuations [8].

Core Viewpoint - Japan's insurance companies are facing significant losses due to rising interest rates and bond market volatility, leading to concerns about potential forced selling of government bonds [1][2][3][4][5]. Group 1: Financial Impact on Japanese Insurance Companies - The four major Japanese life insurance companies reported a total book loss of 8.5 trillion yen (approximately 600 billion USD) for the last fiscal year, a threefold increase year-on-year [1][3]. - Meiji Yasuda Life Insurance Company disclosed a staggering increase in its domestic bond losses, which surged over eightfold to approximately 1.386 trillion yen [3]. - Sumitomo Life Insurance's bond losses also more than doubled, reaching 1.518 trillion yen [3]. Group 2: Broader Asian Insurance Sector Challenges - The entire Asian insurance sector is experiencing billions of dollars in book losses, primarily due to their investment in long-term bonds [2][4]. - Taiwanese insurance companies are also facing significant declines, with net worth dropping to 2.4172 trillion TWD, marking the largest monthly decrease in two and a half years [3]. Group 3: Risks of Forced Selling - Rising interest rates are pushing insurance companies towards a "death spiral" of forced selling, as policyholders may cancel policies for higher-yielding investments, necessitating cash for payouts [5][6]. - If interest rates continue to rise, it could lead to further bond devaluation and increased book losses, creating a self-reinforcing downward cycle [6]. Group 4: Central Bank Dilemma - The Bank of Japan faces a challenging dilemma: raising interest rates could force insurance companies into liquidation, while not raising rates could lead to a collapse of the yen and soaring inflation [7]. - There is speculation that further increases in long-term bond yields may be limited, but any decline in bond prices could still compel insurance companies to sell portions of their holdings [7].