Guotai Haitong: Bonds are still ballast, and equity allocation has significantly increased.

Guotai Haitong released a research report stating that it is optimistic about the factors both internally and externally on the asset side driving insurance companies' profits towards improvement. Over the past 26 years, long-term interest rates have generally been running in the range of 1.79% to 1.90%. The bank believes that the stabilization and rebound of long-term interest rates, coupled with expectations of a moderate rise in the equity market, as well as insurance companies optimizing asset management balance allocation/trading strategies, are expected to jointly drive the improvement of insurance companies' profits. It is expected that internal and external factors on the asset side will jointly drive profit improvement, maintaining an industry "hold" rating. Guotai Haitong's main points are as follows: Event On February 12, the China Banking and Insurance Regulatory Commission released the report on the utilization of insurance funds in the fourth quarter of 2025. Growth in premium income drives steady increase in the utilization of insurance funds in 2025 By the end of 2025, the balance of the insurance industry's fund utilization amounted to 38.5 trillion yuan, an increase of 15.7% from the beginning of the year. Of this, life insurance accounted for 34.7 trillion yuan, an increase of 15.7% from the beginning of the year, and property insurance accounted for 2.4 trillion yuan, an increase of 8.8% from the beginning of the year. The bank expects that mainly benefited from the strong demand for insurance savings, steady cash flow contributions brought by growth in premium income, with the insurance industry's premium income expected to increase by 7.1% year-on-year in 2025, life insurance by 8.3%, and property insurance by 3.9%. Stable bond allocation over 25 years, significant increase in equity allocation 1) By the end of the fourth quarter of 2025, the insurance industry (life insurance and property insurance combined) allocated a total of 5.70 trillion yuan to "stocks + funds", an increase of 1.60 trillion yuan from the beginning of the year. This accounted for 15.4%, an increase of 2.6 percentage points from the beginning of the year. Of this, stock assets reached 3.73 trillion yuan, an increase of 1.31 trillion yuan from the beginning of the year and an increase of 0.11 trillion yuan from the end of the third quarter; accounting for 10.1%, an increase of 2.5 percentage points from the beginning of the year and holding steady from the end of the third quarter. Fund assets amounted to 1.97 trillion yuan, an increase of 0.29 trillion yuan from the beginning of the year and a decrease of 34 billion yuan from the end of the third quarter; accounting for 5.3%, an increase of 0.1 percentage point from the beginning of the year and decreasing by 0.2 percentage points from the end of the third quarter. The bank expects on one hand that insurance funds will respond to the guidance of "long-term funds entering the market" to increase equity asset allocation, and on the other hand, will benefit from the recovery of the equity market over 25 years which led to the increase in financial asset values, with the Shanghai Stock Exchange index rising by 18.4% from the beginning of the year. 2) The proportion of bond assets in the insurance industry's allocation is 50.4%, an increase of 0.9 percentage points from the beginning of the year and 0.1 percentage points from the end of the third quarter. The bank expects that bond assets will continue to be the "cornerstone" of insurance company asset allocation, and in a fluctuating interest rate environment, insurance companies are expected to flexibly adjust bond allocation/trading strategies. 3) The proportion of bank deposits in the insurance industry's allocation is 8.2%, a decrease of 0.9 percentage points from the beginning of the year and an increase of 0.3 percentage points from the end of the third quarter. With current deposit interest rates still at a low level, the bank expects the proportion of bank deposits to continue to decline. 4) The proportion of other assets in the insurance industry (mainly non-standard assets) allocation is 18.4%, a decrease of 2.7 percentage points from the beginning of the year and holding steady from the end of the third quarter. The bank expects the proportion of other assets to further decrease due to the expiration of existing non-standard assets and the background of a scarcity of high-quality new non-standard assets. Risk warnings: Downward movement of long-term interest rates; market volatility; improvement in funding costs not meeting expectations.