CITIC SEC: Insurance stocks have both alpha and beta and focus on companies with stable and improving earnings.

CITIC SEC releases research report stating that the insurance industry has taken the lead in transitioning from a declining narrative in the balance sheet towards a benign expansion, officially establishing a positive cycle. It is expected that this upward trend will further strengthen by 2026, as indicated by: the recovery and sustained rapid growth of net assets, the increased popularity of dividend insurance as a main product, the concentration of market share in bank-insurance channels with still significant room for growth, insurance funds serving as patient capital, and the current asset structure benefiting from low bond interest rates and the market landscape of a slow bull market. From a stock selection perspective, insurance stocks have both alpha and beta, and it is recommended to focus on companies with high policy value rates, good growth in new business value, and a focus on high dividend assets for stable and positive returns. Key points from CITIC SEC: Strict regulations and anti-insular measures drive benign expansion of insurance companies' balance sheets. On the policy front, measures to tighten supervision in terms of interest rate spreads and fee differentials continue to be implemented, effectively breaking the cycle of competitive insulation in the industry that has lasted for many years. The industry's net assets have grown from 2.7 trillion yuan at the beginning of 2024 to 3.7 trillion yuan by September 2025, returning to a rapid growth trajectory. During the same period, total assets in the insurance industry increased from 31.8 trillion yuan to 40.4 trillion yuan, confirming the trend of benign expansion of balance sheets. Benefiting from the recovery in net assets, and with growth slightly outpacing total assets, the insurance industry's equity multiplier decreased from 11.9 times at the beginning of 2024 to 10.8 times. Insurance companies promptly increasing their equity ratio are expected to support the sustained improvement in dividend sales. Since 2025, the transformation of dividend insurance has been significant, with most listed companies having over half of their new sales coming from dividend insurance. Regulatory bodies have set guidelines for dividend insurance payout rates, ensuring sustainable and reasonable returns. The stock and bond markets are bullish in 2024 and have continued to improve since 2025, leading to a significantly improved average investment return rate for insurance companies. The concept of a combined bancassurance model has reshaped distribution channels and entered a new phase of balanced growth in volume and value. With the implementation of the "combined bancassurance" model, distribution fees have decreased by over 30%, leading to the concentration of market share towards medium to large insurance companies. In the first half of 2025, listed insurance companies continue to benefit from the consolidation of bancassurance market share. The transition of excess savings deposits into insurance products has led to a rapid growth in new premium volume. It is projected that in 2026, top companies will still have ample room for improvement in their bancassurance market share, and the growth in new premium volume from the migration of savings deposits to insurance is only just beginning. Increasing equity allocation by insurance funds is a long-term trend and a significant source of incremental funding for the equity market. Considering factors such as premium income, claims expenses, and fees, the CITIC SEC predicts that annual incremental investment assets will range from 2-3 trillion yuan. Additionally, the annual reallocation of assets, including deposits, non-standard debt, and bonds, is estimated to be around 3 trillion yuan. Taking into account the current low national bond rates and the expected returns on high-dividend assets (above 5%), insurance companies are likely to continue increasing their equity allocation. Regulatory bodies are actively encouraging insurance funds to enter the market, especially by urging central enterprises to increase their A-share investments. With an estimated total equity investment capital of over 6 trillion yuan, the sustained increase in equity allocation by insurance funds is expected to bring about significant long-term benefits to the equity market. Risk factors: Continued significant decline in long-term interest rates, large fluctuations in the stock market, lower-than-expected sales of insurance policies, and ongoing pressure on agent retention.