Huachuang Securities: Under the new regulations, the quarterly performance fluctuations of insurance companies are the main focus in the short term.

Huachuang Securities released a research report stating that the overall performance of insurance funds in 2024 will significantly benefit from the recovery of the equity market after the launch of the 924 event, but it will also bring baseline pressure to the performance in 2025. The fluctuation in growth rates between quarters may be more pronounced, but increasing the allocation of FVOCI assets is expected to partially mitigate the volatility. Looking ahead to 2025, from the perspective of asset-liability matching, the fundamental factor that is expected to improve equity allocation is the sale of dividend insurance. The core concern of the insurance sector is still the potential "spread loss" crisis, and the trend of long-term interest rates is still one of the important influencing factors in valuation. Under the new regulations, quarterly performance fluctuation is the main focus in the short term. Huachuang Securities' main points are as follows: By the end of 2024, the total assets under management in the insurance industry reached 33.26 trillion, a year-on-year increase of 15.08% (disclosed calibre), with an increase in growth rate of 4 percentage points. The accelerated growth of insurance funds comes from contributions from both the liability side and the investment performance. The financial/comprehensive investment return of the insurance industry in 2024 reached 3.43%/7.21% respectively, showing a significant improvement year-on-year, with a slight increase quarter-on-quarter. This is expected to mainly benefit from the improved activity in the equity market, as insurance funds timely adjust tactical asset allocation according to the changing market styles. By the end of 2024, the total assets under management of property insurance companies and life insurance companies reached 32.17 trillion. In terms of fixed income asset allocation, the allocation to bank deposits/bonds was 9.0%/49.5%. The allocation to bonds increased each quarter, mainly because the downward trend in long-term interest rates prompted insurance companies to pay attention to duration management and increase the allocation of long-term bonds to shorten the duration gap. As for equity assets, the allocation to stocks/funds/long equity investments was 7.5%/5.2%/7.7%. Overall exposure slightly narrowed quarter-on-quarter, with fund/long equity investments decreasing by 0.5%/0.1% respectively. However, the allocation to stocks increased by 0.4% year-on-year. Fund holdings decreased significantly in the fourth quarter, as the accounting measurement of funds can only be at FVTPL due to the direct impact of market callback on the income statement after the end of the 924 event, especially by index funds with apparent beta attributes. In terms of investment performance, the financial/comprehensive investment return of property insurance companies in 2024 was 3.05%/5.51%, with year-on-year increases of +0.76%/+2.14% respectively, showing a slight decrease and increase quarter-on-quarter. The financial/comprehensive investment return of life insurance companies was 3.48%/7.45%, with year-on-year increases of +0.55%/+4.58% respectively, showing improvements quarter-on-quarter. Huachuang Securities stated that the overall performance of insurance funds in 2024 significantly benefited from the recovery of the equity market after the launch of the 924 event, but it also brought baseline pressure to the performance in 2025, with more pronounced fluctuations in growth rates between quarters. However, increasing the allocation of FVOCI assets is expected to partially mitigate the volatility. Investment recommendations: Looking ahead to 2025, from the perspective of asset-liability matching, the sale of dividend insurance is expected to be the fundamental factor in improving equity allocation. The core concern of the insurance sector is still the potential "spread loss" crisis, and the trend of long-term interest rates is still one of the important influencing factors in valuation. Under the new regulations, the fluctuation in quarterly performance is the short-term main focus. In addition, continued attention to regulatory changes, policies such as dynamic adjustment of predetermined interest rates, entry of medium and long-term funds into the market, and pilot projects of insurance funds investing in gold have fully demonstrated the regulator's attention to the potential "spread loss" crisis in the industry. Through multiple channels such as improving liability costs and expanding investment channels, the industry is expected to continue to develop steadily. Current PEV valuation: AIA 1.13x, China Life 0.80x, Ping An 0.63x, CPIC 0.55x, and New China Life 0.57x. PB valuation: Property insurance H 1.11x, People's Insurance A 1.15x, and Zhongan H 0.99x. Target stocks: Ping An Insurance (601318.SH, 02318), China Pacific Insurance (601601.SH, 02601), New China Life Insurance (601336.SH, 01336), China Life Insurance (601628.SH, 02628), and it is recommended to pay attention to PICC P&C (02328). Risk warning: Regulatory changes, exacerbation of natural disasters, downward trend in long-term interest rates, volatility in equity markets.