Donghai Securities: Optimistic about the sector catalysis brought by the increase in first quarter value, focusing on the opportunity for insurance sector allocation.

Donghai Securities released a research report stating that the transformation of life insurance liabilities is still ongoing, the decline in workforce size is weakening, and the effectiveness of capacity improvement is significant. It is recommended to continue to focus on capacity climbing under stable scale, as well as the release of demand after activation of insurance awareness. From the investment side, the "Nine Articles of the State" clearly mark a new starting point for the capital market, with an optimistic outlook for the equity market. Long-term interest rates are at historically low levels, and the expected rate cut may help mitigate the risk of interest rate spread losses. The sector is in a historically low valuation range, and attention should be paid to sector allocation opportunities, with a recommendation to focus on large listed insurance companies with obvious competitive advantages. Key points of Donghai Securities: Event On April 24, the Insurance Industry Association organized the first quarter meeting of the Life Insurance Industry Interest Rate Research Expert Advisory Committee for 2026, to discuss the economic situation and interest rate trends. It was noted that the research value for the predetermined interest rate of ordinary life insurance products is 1.93%, up 4bps from the previous quarter. The research value of the predetermined interest rate increased by 4bps to 1.93%, signaling a bottoming out and a stabilization, with a low probability of adjustment for the whole year. At this meeting, the research value for the predetermined interest rate of ordinary life insurance products was set at 1.93%, marking the first increase since the implementation of the dynamic adjustment mechanism. This ended the previous downward trend over five consecutive quarters (2.34%, 2.13%, 1.99%, 1.90%, 1.89%), with the decrease narrowing and stabilizing. Reference indicators show that the 5Y-LPR (still at 3.5% in 2026Q1) and 5Y fixed deposit rate (still at 1.3% in 2026Q1) remained unchanged for two consecutive quarters, while the 10-year treasury bond yield (1.82%) slightly decreased. However, since the second half of 2025, the trend for long-term interest rates has been warming, driving the research value to rise. The current research value is only 7bps away from the upper limit of 2.0% of the predetermined interest rate for ordinary products, and it is expected that the upper limit of the predetermined interest rate will remain unchanged for the whole year, further consolidating the stability of product pricing. Participating in the development of the bonus insurance market, the release of the capacity of the bank-insurance channel, and the continuous optimization of the liability structure. In the first quarter of 2026, the trend of residents moving their deposits continued, coupled with the advantages of the "guaranteed+floating" return structure of bonus insurance products, the sales of the industry's new bonus insurance products continued to be hot, with the proportion of new premiums for bonus insurance continuously increasing, becoming the absolute main force. On the product side, the regulators tightened the demonstration upper limit of the bonus insurance interest rate to 3.5% and deepened the promotion of the "reporting and administration unified" approach, forcing the industry to focus on stable products with "low guarantee, high floating" features. Based on this, some insurance companies have launched bonus insurance products with a predetermined interest rate of 1.25%, which not only alleviate the risk of interest spread loss, but also raise higher requirements for bonus income, putting more emphasis on investment capacity and bonus realization rate. On the channel side, the bank-insurance channel continued its high-growth momentum, with leading insurance companies doubling their premiums paid through bank-insurance in the first quarter of 2026, with the proportion of premiums paid in installments continuing to rise, becoming the core engine of liability growth. Looking ahead, the trend of residents' financial investment needs transitioning to insurance remains unchanged, and the bank-insurance channel, with the advantages of bank branches and customer resources, is expected to continue to attract savings funds. With the support of product and channel barriers, leading insurance companies will continue to lead the industry in terms of new business growth. The stabilization and rise of long-term interest rates, focus on high dividends and new productive forces in equity allocation, and the enhancement of investment income elasticity. On the interest rate side, the yield of the 10-year treasury bond fluctuated narrowly in the first quarter, stabilizing around 1.82%, confirming the bottoming out of long-term interest rates, which in turn stabilized the central net investment yield of insurance companies and significantly alleviated the pressure of interest spread loss. In terms of equity allocation, structural opportunities in the capital market have emerged, and insurance companies have increased their allocations in two major directions: firstly, they are investing in new productive forces, increasing their exposure to technology sectors such as artificial intelligence and high-end manufacturing, and tapping into long-term growth value; secondly, they are increasing their holdings of high-dividend assets, which is in line with the demand for FVOCI assets under the new accounting standards. Leading companies in the industry increasingly holding each other's shares transmit a signal of fundamental improvement. Although the volatility of the equity market in the first quarter put pressure on current profits, the stabilization of long-term interest rates and the optimization of equity allocation provided support, coupled with the low base effect brought about by the impact in April last year, it is expected that the investment income of insurance companies will stabilize and rise in the current year, with leading insurance companies showing more resilience in terms of investment performance due to their diversified allocation and timing capabilities. Risk warning: New business sales falling below expectations causing pressure on liability growth, long-term interest rate decline and equity market volatility leading to unsatisfactory investment performance, inadequate reduction of property insurance risks leading to high COR, policy risks.