CMSC: It is expected that high-dividend stocks will still have strategic allocation value for insurance funds by 2025.

CMSC released a research report stating that in terms of equity investment, high dividend stocks combine stable income and relatively controlled risk, still having medium to long-term strategic allocation value for insurance funds. It is expected that by 2025, the incremental allocation scale of high dividend stocks in the insurance industry will still be promising. While insurance funds grasp the dividend strategy and investment safety margin, they will also adhere to style diversification and strategy diversification to flexibly respond to market changes. In terms of bond investment, insurance companies are expected to actively seek excess investment income through refined strategic and tactical asset allocation by 2025: first, continue to stably allocate ultra-long-term interest rate bonds to narrow the duration gap between liabilities and assets; second, seize opportunities for short-term trading to increase investment income and play the role of trading fixed income; third, actively explore opportunities to allocate high-quality credit securities with superior yield, expanding the scope of allocation. In alternative investments, insurance funds are expected to continue innovating equity and asset securitization products and maintain or increase REITs allocation, obtaining returns through more diversified asset allocation. CMSC's main points are as follows: Looking back at 2024, the investment scale of the insurance industry grew strongly, and the allocation structure remained stable. As of the end of the third quarter of 2024, the balance of funds utilized by the insurance industry was 32.2 trillion yuan, a year-on-year increase of 14.1%, with the growth rate reaching a four-year high, mainly driven by the rapid growth of insurance premium sizes due to the popularity of endowment insurances such as life savings; among them, the proportion of stocks and fund investments of life insurance companies and property insurance companies was 13.2%, relatively stable. In comparable terms, the absolute size of the aforementioned increased by 638.79 billion yuan from the beginning of the year; the proportion of bond investments continued to rise to 48.4%, with the absolute size increasing by 268.71 billion yuan from the beginning of the year in comparable terms; the proportion of bank deposits was 9.0%, stable with a slight decrease, while the proportion of other investments was significantly reduced to 29.4%. Against the backdrop of a rapid rebound in A-shares in September, the industry's annualized financial investment return rate in the third quarter of 2024 was 3.1%, up by 0.2 percentage points year-on-year, with life insurance companies at 3.0% and property insurance companies at 3.1%. For listed insurance companies, which dominate the industry, the overall investment style is more conservative, and the performance of returns significantly outperformed the industry average. Equity investment focuses on high dividend and long equity investments, with significant growth in dividend asset scale and proportion, and clear excess returns. (1) In the first half of 2024, insurance funds' dividend strategy successfully led the market style, with the total FVOCI stocks of major listed insurance companies at the end of June amounting to 355.22 billion yuan, an increase of 96.54 billion yuan net from the beginning of the year, increasing the stock proportion by 5.4 percentage points to 27.6% year-on-year. It is estimated that the actual high dividend holding scale of the entire industry is larger. It is expected that the pace of insurance funds' allocation to high dividend stocks slowed down in the third quarter of 2024. By the end of the third quarter, insurance companies' holdings of A-shares' heavy flow shares were concentrated in the top five industries: banks (47.0%), real estate (8.0%), telecommunications services (7.1%), capital goods (6.9%), and utilities (6.2%). Banks and real estate have been reducing their holdings quarter by quarter since the first quarter of 2024, while utilities, transportation, and energy have been increasing their holdings quarter by quarter. Since December, with the rapid decline in long-term interest rates, digestion of the crowded nature of dividend stocks, and unclear market themes, the advantages of high dividend assets that can provide stable profits and relatively high dividend returns have become prominent once again. The inflow of premiums at the liability end and the clear allocation demand from some non-listed insurers to prepare for the early adoption of new accounting standards have further contributed to the increase in the scale and proportion of high dividend stocks in the insurance industry by the end of 2024 compared to mid-year. (2) The takeover frenzy resumed in 2024, with the number reaching 20 times, hitting a near four-year high, with the companies targeted for takeover accounting for two-thirds of H-shares, mostly with a market value exceeding 10 billion yuan, an average ROE of 8.9%, and an average dividend yield of 4.3%. These companies are mainly distributed in sectors such as utilities, transportation, and environmental protection. (3) There is a significant increase in ETF allocations, mainly due to the high liquidity and low volatility of ETF funds after the new regulations, as well as the advantage in stock selection. According to Wind's statistics on insurance companies holding ETF funds, insurance companies held 177.4 billion shares of ETF funds in the first half of 2024, an increase of 13.5% from the beginning of the year. In terms of investment preferences, insurance companies continue to increase their holdings in broad-based index ETFs such as the SSE 300 while also focusing on dividend ETFs, as well as exploring investment themes in industry-specific ETFs. Bond investment is biased towards long duration interest rate bonds, balancing medium to long-term allocation and credit risk prevention, while the scale of non-standard and bank deposit returns has decreased. (1) As of the end of November 2024, interest rate bonds accounted for 91.0% of the total balance of bonds held by insurance institutions (local government bonds accounted for 54.2%, national bonds accounted for 22.4%, and policy bank bonds accounted for 14.4%). According to disclosed data from listed companies, the proportion of national bonds and government bonds continued to rise in the first half of 2024, while the proportion of corporate bonds with external credit ratings of AAA or above declined, and the duration of fixed-income assets increased year by year. (2) By the first half of 2024, the investment return rate of non-standard investments of listed insurance companies had decreased to around 4.5%, and by the end of the third quarter, the proportion of other investments (excluding long-term equity investments) of life insurance companies and property insurance companies had further decreased to 21.6%. Looking ahead to 2025, the profound changes brought about by low interest rates, new regulations, and product transformation will reshape the investment environment for insurance. It is expected that the balance of funds utilized by the insurance industry will further increase to around 35 trillion yuan, and the proportion of equity allocation is expected to cautiously increase. The main source of insurance funds is the various reserves formed by premium income. Considering the stable renewal premium income accumulated from the recent sales craze of endowment insurance, it is expected that the balance of funds utilized by the insurance industry will continue to grow at around a double-digit rate in 2025. As long-term government bond yields lower than the upper limit of mainstream products' anticipated interest rates have become the norm, the difficulty of insurance companies in allocating fixed-income assets has increased, making it significant for them to increase the proportion of equities to increase investment income. Based on calculations under medium conditions, the growth rate of the balance of funds utilized by the insurance industry in 2025 is estimated to be around 10%, corresponding to a scale of about 35 trillion yuan. If the proportion of stocks and securities investment funds increases to around 14%, the corresponding incremental amount is estimated to be about 700 billion yuan. Risk guidance: DataOmitted statistics, capital market fluctuations."Bonjour, comment vas-tu aujourd'hui?" "Hello, how are you today?"