Zhongtai: Insurance reserved interest rate research value may have bottomed out, confirming the probability of a low "speculative suspension" season in the mid-term.

Zhongtai released a research report on January 20, stating that the expert consultation committee on life insurance industry interest rates in the fourth quarter of 2025 reviewed that the research value of reserved interest rates may have bottomed out and confirmed, with a low probability of experiencing another "policy sales halt" season in the mid-term. The bank reiterated its positive outlook on the sector's investment opportunities and explicitly stated its annual opportunity judgment of "returning to a 1 times PEV repair path and blossoming at both ends of the asset-liability spectrum". The bank believes that since December last year, the insurance sector has experienced a cyclical logic of "good start expectations - long-term interest rate increases - index consolidation strengthening profit elasticity". Key points from Zhongtai: Event: On January 20, the China Insurance Industry Association organized the fourth quarter meeting of the expert consultation committee on life insurance industry interest rates (formerly the "Expert Consultation Committee on Life Insurance Liability Reserve Interest Rates"). The committee concluded that the current research value for traditional life insurance products is 1.89% (down 1bps year-on-year from 1.90%, the bank's calculation result is 1.87%, which is basically consistent). Since 2025, long-term interest rates have stabilized, with a gradually established upward trend in the second half of 2025, and a gradual narrowing of the margin of decline in the research value of reserved interest rates each quarter. In early 2025, the China Banking and Insurance Regulatory Commission issued the "Notice on Establishing Matters Related to the Establishment of a Dynamic Adjustment Mechanism Linked to the Market Interest Rate and the Reserved Interest Rate" ("Notice"), proposing to establish a mechanism that links reserved interest rates with market interest rates and dynamically adjusts them, guiding companies to strengthen the linkage between assets and liabilities and price products scientifically and prudently. According to the "Notice", long-term interest rates, such as the 5-year LPR, 5-year fixed deposit benchmark rate, and 10-year national bond yield, will be used to determine the benchmark value of reserved interest rates, which will be published quarterly by the Insurance Industry Association. As of the end of the fourth quarter of 2025, the 5-year LPR was 3.5% (unchanged from the third quarter of 2025), the 5-year fixed deposit benchmark rate was 1.3% (unchanged from the third quarter of 2025), and the 10-year national bond yield was 1.85% (basically unchanged from the third quarter of 2025). However, according to the calculation formula, the basic return level of the research value involves a 250-day moving average and a 750-day moving average, and the downward trend in long-term interest rates since 2023 still has some "impact". However, it should be noted that since the first disclosure of the research value of reserved interest rates in the fourth quarter of 2024, the marginal declines in the three most recent research values have been 21bps, 14bps, 9bps, and 1bps, showing a gradual narrowing of the declines. The expert consultation committee on life insurance industry interest rates in the fourth quarter of 2025 continued the positive affirmations from the third quarter of 2025. According to the association's disclosure, the previously named "Expert Consultation Committee on Life Insurance Liability Reserve Interest Rates" has been renamed "Expert Consultation Committee on Life Insurance Interest Rate Research", and the bank expects that this better matches the research on insurance contract liabilities under the new regulations. At the same time, this meeting once again emphasized "economic strength, resilience, and vitality" and "driving industry cost reduction and efficiency improvement". The linkage between reserved interest rates and market interest rates and the dynamic adjustment mechanism has been updated from the previous "continuous advancement" to "implementation", while the phrase "responding to challenges" has been removed. It is worth noting that this expert committee also conducted in-depth research on topics such as the impact of new accounting standards, changes in the international trade environment, and insurance asset allocation, which are in line with the current hot topics in the industry. The statements in this meeting continue the positive affirmations from the third quarter of 2025, reflecting the approval of the industry's transformation over the past period and a relatively positive outlook for the next stage of development. If market interest rates remain unchanged, it may be difficult to see another "reserved interest rate adjustment window" in 2026. The reserved interest rate research value for the fourth quarter of 2025 is 1.89%, only 11bps away from the highest reserved interest rate value for traditional life insurance products currently on sale (2.0%), and cannot trigger the previously agreed upon threshold condition of "two consecutive quarters exceeding 25bps". According to the bank's calculations, if the subsequent national bond yield curve, 5-year fixed deposit rate, and 5-year LPR remain at current levels, the simulated reserved interest rate research value at the end of 2026 would be 2.00%, matching the highest reserved interest rate value for traditional life insurance products currently on sale (2.0%). In the medium term, the possibility of adjusting the upper limit of the reserved interest rate for new products is not high. However, it is not ruled out that the regulators will take into account subsequent fluctuations in the stock and bond markets and the operational conditions of insurance funds. Under the guidance of regulators, the reserved interest rate upper limit has been continuously reduced for three consecutive years from 2023 to 2025. The bank predicts that the probability of another "policy sales halt" season in 2026 is low. Risk warning: A decrease in reserved interest rates will reduce the attractiveness of products and increase the difficulty of sales, there may be discrepancies between research calculations and actual conditions, and risks associated with outdated information.