Core Viewpoint - The restoration of value-added tax (VAT) on interest income from newly issued government bonds and other bonds starting from August 8 is expected to have a limited static impact on the net profits of insurance companies, but it may influence their asset allocation strategies, potentially leading to an increased allocation in equity assets as a partial substitute for bonds [1][2][4]. Summary by Sections Policy Changes - As of August 8, 2023, interest income from newly issued government bonds, local government bonds, and financial bonds will be subject to VAT, while those issued before this date will remain exempt until maturity [2]. Impact on Insurance Companies - The overall impact on insurance companies' net profits is estimated to be around 1%, with some firms potentially adjusting their asset allocation towards higher-yielding assets or older bonds to mitigate the effects of the new tax policy [3][4]. - According to estimates from major insurance companies, the impact of the new policy on their net profits is projected to range from 0.26% to 1.77%, indicating a relatively minor effect [3]. Asset Allocation Trends - Despite the slight decrease in actual interest income, bonds will maintain their status as the "ballast" in insurance asset allocation. However, some insurance firms may increase their allocation to equity assets in response to the changing market conditions [4][5]. - Data shows that as of the end of Q1 2023, insurance funds had a bond investment balance of approximately 16.97 trillion yuan, accounting for about 48.58% of total investments, with life insurance companies having an even higher allocation of 51.18% [2]. Future Outlook - Analysts suggest that insurance funds will continue to focus on long-duration bonds, especially in a declining interest rate environment, while also considering high-dividend stocks to enhance overall investment returns [5]. - The potential for increased allocation to high-dividend stocks and growth stocks is anticipated as insurance companies seek to balance short-term volatility with long-term gains, especially as the macroeconomic environment stabilizes [5].

Core Viewpoint - The reintroduction of value-added tax (VAT) on interest income from newly issued government bonds, local government bonds, and financial bonds is expected to have a minimal impact on insurance companies' net profits, estimated at around 1% in the short term, while encouraging a shift towards high-dividend assets and older bonds for hedging purposes [1][3][4]. Summary by Sections Impact of VAT Reintroduction - The Ministry of Finance and the State Taxation Administration announced on August 1 that VAT will be reinstated on interest income from newly issued bonds starting August 8, while previously issued bonds will remain exempt until maturity [2]. - Insurance companies have significantly increased their bond allocations, with bond investments reaching approximately 16.97 trillion yuan, accounting for about 48.58% of total investment [2]. Quantitative Analysis - Research from Huayuan Securities indicates that the short-term impact on insurance companies' net profits from the VAT policy is around 1%, with potential for increased impact as the allocation to new bonds rises over time [3]. - Guojin Securities estimates the impact on the net profits of the five major listed insurance companies for 2024 to be between 0.26% and 1.77%, indicating a generally minor effect [3]. Asset Allocation Trends - Despite the slight decrease in actual interest income, bonds will maintain their status as the "ballast" in insurance asset allocation, although there may be a marginal increase in equity asset allocation to enhance overall investment returns [4][5]. - As of the end of the first quarter, insurance funds have continued to increase their bond allocations, with a notable rise in the proportion of bond investments compared to the end of the previous year [4]. Future Outlook - Analysts suggest that insurance funds will likely accelerate their allocation to long-duration bonds to lock in tax-exempt returns, while the scarcity of these bonds may lead to a premium, resulting in lower long-term bond yields and increased fair value [4]. - Insurance companies are expected to increase their holdings in high-dividend stocks and growth stocks to mitigate the pressure from the VAT reintroduction and declining long-term interest rates, aiming for better long-term returns [6].