Guotai Haitong: In the third quarter of 2025, insurance funds will be allocated with a focus on "increasing stocks and reducing bonds". There is an urgent need to improve the active management capabilities on the investment side.

Guotai Haitong released a research report stating that by the third quarter of 2025, the balance of insurance funds utilization will steadily increase, the proportion of equity assets will further increase, while the proportion of bond assets will decrease compared to the previous quarter. Combining the performance of listed insurance companies in the third quarter, the net investment yield continues to decline in the background of low interest rates and narrowing credit spreads. Guotai Haitong believes that insurance companies urgently need to shift from "passive allocation" to "active management" of asset allocation strategies, flexibly seize market opportunities, continuously optimize asset allocation structures, and promote stable investment returns. It is expected that the importance of active management on the investment side will increase, and Guotai Haitong maintains a "buy" rating. Guotai Haitong's main points are as follows: Event: On November 14, the China Banking and Insurance Regulatory Commission released the utilization of insurance funds by insurance companies in the third quarter of 2025. The balance of insurance funds utilization steadily increased in the first three quarters. As of the third quarter of 2025, the balance of funds utilized by the insurance industry was 37.5 trillion yuan, an increase of 12.6% compared to the beginning of the year; of which life insurance was 33.7 trillion yuan, an increase of 12.6% compared to the beginning of the year; property insurance was 2.4 trillion yuan, an increase of 7.5% compared to the beginning of the year. The main reason for this is expected to be the steady growth in new and renewal premiums, which contributed to the cash flow. In the first three quarters of 2025, the premium income of the insurance industry increased by 8.8% year-on-year, with life insurance increasing by 10.2% and property insurance increasing by 4.9% year-on-year. The allocation of stocks has further increased, while the proportion of bonds has decreased compared to the previous quarter. 1) As of the end of the third quarter of 2025, the insurance industry (calculated as "life insurance + property insurance") allocated stocks amounted to 3.62 trillion yuan, an increase of 1.19 trillion yuan compared to the beginning of the year, an increase of 0.55 trillion yuan compared to the end of the second quarter; the proportion was 10.0%, an increase of 2.5 percentage points compared to the beginning of the year, an increase of 1.2 percentage points compared to the end of the second quarter. It is expected that the continuous increase in the allocation of equity assets by insurance companies and the recovery of the equity market will increase the market value of equity assets. In the first three quarters of 2025, the Shanghai Composite Index increased by 15.8% compared to the beginning of the year, with a quarterly increase of 12.7% in the third quarter. 2) The proportion of fund allocation in the insurance industry is 5.5%, an increase of 0.2 percentage points compared to the beginning of the year, an increase of 0.7 percentage points compared to the end of the second quarter, mainly due to the increase in the market value of equity funds. 3) The proportion of bond asset allocation in the insurance industry is 50.3%, an increase of 0.8 percentage points compared to the beginning of the year, but a decrease of 0.8 percentage points compared to the end of the second quarter. The ten-year Treasury bond yield increased by 20 basis points in the first three quarters, with a 23 basis point increase in the third quarter. It is expected that under the background of a temporary rise in interest rates, the fair value of bond assets will be under pressure, and on the other hand, it is expected that insurance companies will pay more attention to interest rate timing and flexibly adjust their allocation/trading strategies. 4) The proportion of bank deposit allocation in the insurance industry is 7.9%, a decrease of 1.1 percentage points compared to the beginning of the year, a decrease of 0.7 percentage points compared to the end of the second quarter, with a continuous decrease in the proportion of bank deposits under the background of declining deposit interest rates. 5) The proportion of other assets in the insurance industry (mainly non-standard) is 18.4%, a decrease of 2.7 percentage points compared to the beginning of the year, a decrease of 0.4 percentage points compared to the end of the second quarter, with an expected further decrease in the proportion of other assets due to the gradual maturity of non-standard assets and the background of a "asset shortage". The importance of active management on the investment side needs to be improved. Combining the performance of listed insurance companies in the third quarter, the net investment yield continues to decline in the background of a low interest rate environment and narrowing credit spreads. We believe that insurance companies urgently need to shift from "passive allocation" to "active management" of asset allocation strategies, flexibly seize market opportunities, continuously optimize asset allocation structures, and promote stable investment returns. Investment recommendation: It is expected that insurance companies will continue to optimize their asset allocation strategies, promote profitability improvement, and maintain a "buy" rating for the industry. Risk warning: Long-term interest rates continue to decline; capital market volatility; improvement in liabilities costs is not as expected.