Guotai Haitong: Policy strengthens insurance asset long-term assessment mechanism, benefiting long-term profit improvement.

Guotai Haitong released a research report stating that the "Notice on Strengthening the Long-term and Stable Investment of Insurance Funds and Further Enhancing the Long-term Evaluation of State-owned Commercial Insurance Companies" has been issued. The notice further increases the weight of long-term indicators, while also considering long and short-term evaluation goals, which helps insurance funds improve their tolerance for short-term fluctuations, focus on long-term value investment, and enhance profit stability. On the other hand, it helps boost the enthusiasm of insurance funds to enter the market, stabilize the long-term capital supply in the capital market, and build a "long money long investment" capital market ecosystem. The bank maintains a "hold" rating for the industry. Guotai Haitong's main points are as follows: Event: On July 11th, the Ministry of Finance issued the "Notice on Strengthening the Long-term and Stable Investment of Insurance Funds and Further Enhancing the Long-term Evaluation of State-owned Commercial Insurance Companies." The main purpose of the notice is to further implement the long-term evaluation guidance for state-owned insurance companies and increase the space for insurance funds to enter the market. In July 2022, the Ministry of Finance issued the "Performance Evaluation Measures for Commercial Insurance Companies," implementing evaluations of financial indicators such as the capital preservation and appreciation rate and the return on equity of state-owned commercial insurance companies. In recent years, against the backdrop of market volatility, the Ministry of Finance has continued to optimize the long-term evaluation mechanism, alleviating the short-term performance evaluation pressure on state-owned commercial insurance companies, guiding insurance funds to make long-term and stable investments. As of the first quarter of 2025, the balance of insurance fund utilization was 34.9 trillion yuan, with the equity investment ratios of life insurance and property insurance companies at 8.4% (up by 0.8 percentage points from the beginning of the year) and 7.6% (up by 0.4 percentage points from the beginning of the year), respectively. The bank expects that the purpose of this notice is to further clarify the requirements of the long-term evaluation mechanism, encourage insurance funds to increase their equity allocations, and establish a "long money long investment" capital market ecosystem. The notice strengthens the long-term evaluation of operational efficiency indicators and promotes long-term investment of insurance funds: 1) Further guiding commercial insurance companies to implement long-term evaluation: The evaluation method for operational efficiency indicators such as the return on equity has been adjusted from a combination of a "3-year cycle indicator and the current year's indicator" to a combination of the current year's indicator, the 3-year cycle indicator, and the 5-year cycle indicator. The evaluation method for capital preservation and appreciation rate has been adjusted from the current year's indicator to a combination of the current year's indicator, the 3-year cycle indicator, and the 5-year cycle indicator. The weights of the current year's indicator, the 3-year cycle indicator, and the 5-year cycle indicator for the return on equity and capital preservation and appreciation rate are 30%, 50%, and 20%, respectively. 2) Strengthening asset-liability matching requirements: State-owned commercial insurance companies need to enhance their asset-liability management level, match assets and liabilities in terms of maturity structure, cost-effectiveness, cash flow, etc., further optimize asset allocation, determine the equity investment ratio reasonably, balance investment returns and risks effectively, achieve stable growth in owner's equity, and preserve and increase state-owned financial capital value. 3) Guiding long-term investments: Improve internal medium and long-term evaluation mechanisms, discover quality investment targets with stable returns, controllable risks, appreciation potential, and stable cash flow, strive to increase long-term stable income, better play the role of insurance funds as long-term capital and patient capital "ballast," and actively serve the high-quality development of the real economy. Guiding the optimization of asset allocation, benefiting the improvement of the profit stability of state-owned insurance companies: The notice further increases the weight of long-term indicators while also considering long and short-term evaluation goals, which helps insurance funds improve their tolerance for short-term fluctuations, focus on long-term value investment, and enhance profit stability. On the other hand, it helps boost the enthusiasm of insurance funds to enter the market and stabilize the long-term capital supply in the capital market. Risk warning: Market volatility; declining long-term interest rates; regulatory policy uncertainty.