Tianfeng: How much room do insurance funds have to increase their holdings in bank stocks?

In recent years, the pace of insurance funds allocating to stocks has accelerated. By the end of the first quarter of 2025, life insurance and property insurance companies had a total investment of 2.82 trillion yuan in the stock market, a year-on-year increase of 44.5%, an increase of 19.5 percentage points from the end of 2024. In terms of scale, the stock investments of life insurance and property insurance companies in the first quarter of 2025 increased by 871.7 billion yuan and 44.9 billion yuan year-on-year, both reaching the highest expansion levels in nearly two years in the two types of insurance fund investments; in terms of weight, the stock investments of life insurance and property insurance companies accounted for 8.4% and 7.6% of the balance of insurance fund utilization, respectively, a month-on-month increase of +0.9 and +0.4 percentage points, and both types of insurance fund stock investment weights reached the highest levels in nearly two years. The preference of insurance companies for stock investments is mainly focused on high dividend stocks in the banking industry. This is reflected in: First, the significance of OCI accounts as an important carrier for equity allocation by insurance funds has increased. From the perspective of insurance company operations, in recent years, the stock investments of listed insurance companies have shown a significant trend towards OCI accounts. In terms of the proportion of stock allocation to OCI accounts, by the end of 2024, the major insurance companies' OCI stock assets accounted for 28.4% of their stock investments, an increase of 7.6 percentage points from the end of 2023. Among them, Ping An Insurance had the largest OCI stock investment size of 263.2 billion yuan, accounting for the highest proportion of held stock assets at 60.2%; The People's Insurance had an OCI stock investment size of 27.3 billion yuan, accounting for 45.4% of the stock investment weight, an increase of 10.1 percentage points from the end of 2023; New China Life Insurance had the highest increase in OCI stock asset weight at 12.3 percentage points, rising to 17.9%. Overall, the proportion of OCI stock allocation by major insurance companies has exceeded 30%, and there may still be some allocation space in the future. Under the new accounting standards, based on the demand for smooth profits, insurance funds tend to adopt a high dividend strategy when allocating stocks. According to the new financial instrument standard (IFRS9), the majority of stocks held by insurance companies need to be classified as "measured at fair value with changes reflected in current profit or loss (FVTPL)", which will directly affect the net profit for the period due to fluctuations in stock prices. However, if high dividend assets with stable dividends and small price fluctuations are allocated, they can be designated to be accounted for as "measured at fair value with changes reflected in other comprehensive income (FVOCI)", where only dividend income is recognized in profit or loss, and fair value changes are recognized in other comprehensive income on the balance sheet, thus achieving the effect of smoothing profit fluctuations. By 2023, listed insurance companies had basically implemented the new standards, and by 2026, other non-listed insurance companies will gradually implement the new standards. Therefore, under the influence of the new standards, the demand for smoothing profits by insurance companies will continue to exist, and the high dividend investment strategy represented by the banking sector is expected to continue in the future. Second, insurance companies' stock investments are mainly focused on high dividend sectors such as banking. As of the first quarter of 2025, in terms of holdings' market value, non-banking, banking, and utilities were the top three industries with heavy investments by insurance funds, with holdings of 738.0 billion yuan, 392.4 billion yuan, and 41.5 billion yuan respectively, accounting for 51.1%, 27.2%, and 2.9% of the total holding market value for all sectors. Specifically, as of the first quarter of 2025, the insurance funds' heavy investment market value in the banking sector increased by 30 billion yuan, the highest among all second-tier industries in Wind. In terms of the number of shares held, the top three industries were banking, non-banking, and transportation, with the banking sector holding 43% of the total shareholding of insurance funds, making it one of the main sectors where insurance funds hold heavy investments. Looking ahead, under the policy guidance of long-term capital entering the market and the long-term assessment of insurance companies, we expect the allocation strength of insurance funds to banking stocks to continue to increase. Third, there is a wave of insurance funds taking substantial stakes again, with the banking industry being the main target. This year, the frequency of insurance funds taking substantial stakes is higher than in previous waves. Over the past decade, there have been three rounds of significant waves of insurance funds taking substantial stakes, in 2015, 2020, and 2024. The total number of substantial stakes in these three years reached 116, accounting for 63.7% of all substantial stakes. As of August 5, 2025, insurance funds had taken substantial stakes 21 times, surpassing the total number of substantial stakes in 2024. Looking at the distribution of substantial stakes, bank stocks have been important investment targets in the recent two waves of substantial stakes by insurance funds. For insurance funds, bank stocks have a dividend yield superior to long-term bond yields, combined with their low volatility and defensive properties, bank stocks continue to be favored by insurance funds. Specifically, insurance companies have taken substantial stakes in listed banks this year, including Postal Savings Bank Of China, China Merchants Bank, Agricultural Bank Of China, mainly focusing on H shares. The attractiveness of bank stocks remains strong Continued policy support may benefit bank stocks. Since the beginning of the year, several policies have been continuously strengthened to promote the entry of insurance funds into the market. On January 22, several departments jointly issued the "Implementation Plan for Promoting Long-Term Capital into the Market," and at a press conference, it was proposed to "strive for large state-owned insurance companies to invest 30% of the new premiums into A-shares from 2025 onwards." On April 8, the China Banking and Insurance Regulatory Commission issued the "Notice on Adjusting the Proportion of Equity Assets Supervised by Insurance Funds," optimizing the regulatory policy on the proportion of equity assets for insurance funds and increasing support for the capital market and the real economy. On July 11, the Ministry of Finance issued the "Notice on Further Strengthening the Long-Term Prudent Investment of Insurance Funds and Enhancing the Long-Term Assessment of Commercial Insurance Companies," following the first long and short time combination assessment approach adopted by the Ministry of Finance in 2023 for the operating performance of state-owned commercial insurance companies, the Ministry of Finance further strengthened long-term assessment measures. Under the above policy dividends, the banking sector, with its low volatility, high dividend yield, and policy guidance on long-term funds entering the market, remains an attractive sector for insurance funds with potential benefits. Bank stocks are stable and have outstanding advantages in the high dividend sector. A-shares listed banks are the backbone of China's financial market. By the end of the first quarter of 2025, the total assets of the banking industry in the second-tier board of CITIC reached 31.4 trillion yuan, ranking first and accounting for 68% of the total assets of all second-tier boards, an increase of 7.5% year-on-year, ranking eighth among all CITIC second-tier boards; the profits of the banking industry were 0.66 trillion yuan, ranking first and accounting for 34% of the total profits of all second-tier boards listed on the A-share market. As of August 5, 2025, the weight of the banking sector in the constituents of the Shanghai and Shenzhen 300 Index was 14.9%, ranking first; the Shanghai and Shenzhen 300 Index had a total of 24 banking constituent stocks with a total market value of 15 trillion yuan, also ranking first. Given the background of low-interest rates and "asset shortage," the advantages of bank stocks as high dividend, quasi-fixed-income assets are highlighted. Currently, the interest rate for 1-year time deposits has fallen below 1%, 10-year government bond yields fluctuate around 1.70%, and the average redemption yield for open-ended fixed-income financial products in June was 2.73%. With the downward trend of interest rates and the difficulty in finding relatively stable and high-yielding assets, coupled with the continued good news such as bond capital gains realization and stabilizing yield spreads, the banking sector remains attractive with its strong defensive qualities. Among the sectors corresponding to the "high dividend" investment strategy, the banking sector stands out with its advantages. On the one hand, in the high dividend sector, banks have significant undervaluation advantages. As of August 5, the top three sectors in the CITIC second-tier industry by dividend yield for the year 2025 were coal, banks, and oil and petrochemicals, with dividend yields of 5.51%, 3.73%, and 3.12% respectively, with the dividend yield of the banking sector being 2.02 percentage points higher than the yield on 10-year government bonds. However, the valuation of bank stocks is low, at only 0.77 times, while the coal and oil and petrochemical industries have valuations of 2.02 times and 2.92 times respectively. Furthermore, the profit fluctuations of the banking sector are relatively small, making it relatively stable and secure. On the other hand, bank stocks generally have large market capitalizations with relatively small fluctuations. The average market capitalization of individual bank stocks is 355.6 billion yuan, ranking first in the CITIC second-tier board. Looking back at the past few periods of significant downward pressure in the A-share market, the annualized volatility of the banking sector generally ranged from 20% to 48%, the lowest among all CITIC second-tier industries. There is still significant room for insurance funds to increase their allocation to banks. The increase in allocation of insurance funds to banks can be understood in two ways: first, that insurance companies can use their investable funds (mainly from premium income) to invest in bank stocks, directly bringing incremental funds to bank stocks. This mainly reflects the active increase in holdings of bank stocks by insurance funds. Second, the increase in the carrying value of bank stocks in the balance of insurance funds' assets. This increase may be related to the active increase in holdings behavior and the passive appreciation phenomenon driven by the rise in bank stock prices. Therefore, the increased allocation space of insurance funds to bank stocks can be considered from two perspectives: First, the incremental funds brought in by new premium investments. On January 23, at a press conference on long-term capital entering the market, the China Securities Regulatory Commission explicitly stated that "strive for large state-owned insurance companies to invest 30% of the new premiums into the A-share market from 2025 onwards." There is currently no clear definition of new premiums from a regulatory perspective. We measured this by using two metrics: total premium income and premium income excluding insurance service fees and business and management expenses, using the data from the five large state-owned insurers (China Life Insurance, The People's Insurance, China Pacific Insurance, CHINA TAIPING, New China Life Insurance) for 2023-2024. The total premium income and premium income excluding relevant expenses for the five large insurers in 2024 were 2.23 trillion and 1.17 trillion respectively, showing a year-on-year increase of 6.5% and 6.6%. Based on the available data, we make the following assumptions and calculations: (1) Assumes a 5% year-on-year growth in new premiums in 2025. On the one hand, as deposit rates continue to decline, insurance products with the combined advantages of risk protection and locked-in interest rates are more attractive, and we expect the total premium income of the five major insurers to continue to grow steadily. On the other hand, since the China Banking and Insurance Regulatory Commission issued the "Notice on Improving the Pricing Mechanism of Life Insurance Products" in August last year, adjusting the upper limit of preset interest rates of life insurance products to enter the "2-era," premium income growth may slow down. According to the latest data from the China Banking and Insurance Regulatory Commission, insurance companies' premium income grew by 5.3% year-on-year in the first half of 2025, significantly slower than the 11.2% in 2024. Considering the 2024 year-on-year growth rates of the two metrics for the five large insurers of 6.5% and 6.6%, we expect the trend of slowing growth to continue in 2025, thus assuming a 5% year-on-year growth in new premiums in 2025. Based on this assumption and the known data for 2024, the new premiums for the five large insurers under the two metrics are 2.34 trillion and 1.23 trillion, respectively. If the regulatory requirement is implemented, with 30% allocated to the A-share market, the incremental funds brought by insurance funds to the market in 2025 will be approximately 701.9 billion and 368.4 billion under the two metrics. (2) Assumes that 20% of the investment by insurance funds goes to A-share listed banks. Due to the lack of publicly available detailed holdings of insurance funds, we consider this assumption based on the distribution of market capitalization and the structure of heavy holdings by insurance funds. From the perspective of market capitalization distribution: by the end of the first quarter of 2025, the market capitalization of A-share banks accounted for 13.7%, considering that insurance funds prefer to hold large-cap blue-chip stocks such as banks and utilities, there may be a significant over-allocation to banks in stock holdings. If this proportion is taken as the assumed value for the proportion of insurance funds allocated to banks, there may be some underestimation. From the perspective of heavy holdings structure: Heavy holdings by insurance funds refer to stocks that are held in large amounts by insurance companies and are among the top ten shareholders of a listed company due to their high shareholding proportions. As of the end of the first quarter of 2025, the market capitalization of banks in the heavy holdings of insurance funds accounted for 27.2%, significantly over-allocating to banks compared to the market capitalization of A-share listed banks. This is partly due to the conservative and long-term investment style of insurance companies and the fact that bank stocks are mostly high-market capitalization blue-chip stocks, making it easy to concentrate on heavy holdings. Therefore, assuming this proportion as the assumption value may lead to some overestimation. Taking into account the above factors, the average of the two proportions is taken as a measure, assuming that 20% of the funds of insurance funds entering the market goes to A-share listed banks, the incremental funds brought to bank stocks in 2025 under the two metrics will be approximately 140.4 billion and 73.7 billion. Under the strong guidance of supervision, this incremental funds will grow with the growth of premium income every year, bringing a stable and substantial flow of funds into bank stocks. To compare the impact of the incremental funds derived from the above calculations on banking stocks, we similarly estimate the scale of the investment in A-share banks by the five major insurers in 2024. However, as the regulatory statement "strive for large state-owned insurance companies to invest 30% of the new premiums into the A-share market from 2025 onwards" suggests that the proportion of new premium income invested in the A-share market in 2024 is likely less than 30%, we estimated it at 10%, 15%, 20%, 25%, and 30%. It can be seen that even when calculated at the relatively high proportion of 25%, the incremental funds entering the banking sector in 2025 were expected to increase by 29% compared to 2024. Second, the increase in the equity asset allocation upper limit provides additional room for growth. In April, the China Banking and Insurance Regulatory Commission issued the "Notice on Adjusting the Proportion of Equity Assets Supervised by Insurance Funds," which streamlined tier standards, and raised the upper limit for the proportion of equity assets corresponding to some tiers of solvency ratios, further expanding the space for equity investment. According to the new regulations, for insurance companies with a comprehensive solvency ratio exceeding 150% but below 250%, their upper limit for equity asset allocation is 30%. By the end of March 2025, the overall comprehensive solvency ratio of the insurance industry was 204.5%, with property insurance companies and life insurance companies having comprehensive solvency ratios of 239.3% and 196.6% respectively. Therefore, the theoretical upper limit for the allocation of equity assets for most companies in the property and life insurance industries is 30% of the total assets at the end of the last quarter. For some listed insurance companies with relatively high solvency ratios, their upper limit for the allocation of equity assets can reach 40% of the end of the last quarter of total assets. If the equity asset category includes stocks, securities investment funds, and long-term equity investments, the proportion of equity assets in life insurance and property insurance by the end of the first quarter of 2025 was 21.2% and 17.3%, respectively, representing a 8.8% and 12.7% increase from the 30% limit, thereby providing incremental room for equity investments of 276.12 billion and 36.91 billion yuan, respectively. Considering a static calculation, assuming that the proportion of stocks in the incremental equity investment remains the same, with stocks accounting for 39.5% and 34.3% of life insurance and property insurance respectively, then this translates to 10.896 billion and 1.266 billion yuan of stock allocation space. If insurance funds hold 20% of their positions in bank stocks, there is additional space of 217.9 billion and 25.3 billion yuan respectively available for allocating to bank stocks, with a total size of 243.2 billion yuan. This result is a static calculation based on the data as of the first quarter of 2025, and with the expansion of insurance fund assets, it is expected that allocation space will further open up. As of the first quarter of 2025, the market value of insurance funds' heavy holdings in bank stocks was 392.4 billion yuan, and if the additional allocation space is fully utilized for heavy holdings, the market value of insurance funds' heavy holdings in bank stocks will increase by 62%. From the actual disclosed data, the phenomenon of insurance funds actively increasing their allocation to bank stocks has gradually become evident in 2025. The market value of heavy holdings in bank stocks in the first quarter of 2025 increased by 3.3% quarter-on-quarter. Breaking it down, the average share price increased by only 1.2%, while the number of shares held increased by 2.1%, indicating that the increase in market value of heavy holdings was mainly driven by increased holdings of bank stocks, different from the reasons driven by stock price growth in 2024. There is still significant room for insurance funds to increase their allocation to bank stocks, and under the momentum of capital driving forces, there is still potential for the valuation of bank stocks to continue to improve. According to the two calculation methods mentioned above: firstly, the