Shenwan Hongyuan Group: Long-term equity investments have become a key focus of insurance fund layout. Effects of insurance fund investment account selection on profit realization are being monitored.

Shenwan Hongyuan Group released a research report stating that under the low interest rate environment, long-term equity investment is one of the key directions for insurance capital layout. Previously, the market's attention to insurance capital primary investments was relatively limited. It is recommended to pay attention to the potential positive contribution of the IPO of key companies to the investment performance of insurance capital. In the medium term, there has been no change in the trend of asset and liability improvement in the insurance sector. If the market style switches/funding concerns are reduced, the sector's upward elasticity is at a strong level. It is expected that some insurance companies will perform well in the second quarter market rebound. Key points of Shenwan Hongyuan Group are as follows: PICC/SUNSHINE appeared in the shareholder list of Changxin Technology, dividend account funds may participate in investment Referring to the equity structure disclosed in the prospectus of Changxin Technology, the shareholding ratios of The People's Insurance and its wholly-owned subsidiary PICC Capital, holding company PICC Science and Innovation, and affiliated company Jianxin Leadership are expected to be 0.70%/0.13%/0.34% before the offering and 0.78%/0.15%/0.37% after the offering, respectively. The investment return for The People's Insurance and SUNSHINE INS is estimated to be 49.26/31.75 billion yuan respectively if Changxin Technology is valued at 1 trillion yuan. However, it should be noted that the dividend account funds may participate in the corresponding investments, in which case the investment income may first be absorbed by CSM and gradually recognized as income. In addition, the China Life Insurance Group also participates in the investment, with China Life Insurance holding a stake of 0.79%, and Jianxin Leadership holding a stake of 0.37% (China Life Insurance holds 8.2152% of Jianxin Leadership's equity), but the scale of the penetration holding is relatively limited. Dividend insurance uses the VFA model for measurement, and investment income is first absorbed by CSM and gradually recognized as profit Under the new insurance contract standard IFRS17, the measurement models for insurance contracts are divided into three categories: General Measurement Model (GMM), Variable Fee Approach (VFA), and Premium Allocation Approach (PAA), with dividend insurance applying the VFA model. The VFA model measurement is significantly different from the traditional GMM model used for traditional insurance: 1) In terms of revenue recognition mechanism: Under the GMM model, only the investment component experience deviation is absorbed by CSM and amortized in the current period, operational assumption changes, investment fluctuations directly reflected in the current period profit and loss; under the VFA model (when the insurance contract group is profitable), the investment component experience deviation, operational assumption changes, discount rate assumption changes, and investment fluctuations are all absorbed by the Contractual Service Margin (CSM) and gradually recognized as income through periodic amortization. The estimated amortization rates of CSM for SUNSHINE INS and The People's Insurance in 2025 are 7.6%/12.2%. 2) In terms of profit and loss balance mechanism: Under the GMM model, underwriting financial profit or loss is the liability interest cost calculated using the quasi-principal assessment rate; under the VFA model (when the insurance contract group is profitable), underwriting financial profit or loss is the "mirror" of investment performance, equal to the investment income corresponding to the liability asset, achieving a hedge between liabilities and assets, effectively smoothing profit fluctuations. However, it should be noted that if the corresponding contract group status is in a loss, the corresponding investment income is first used to hedge the loss portion of the contract group (directly reflected in the decrease of the expense item insurance service fees, i.e., the corresponding revenue goes directly into the profit and loss statement), and after the hedge, if there is a surplus, the surplus portion is absorbed first and then amortized as mentioned above. Risk warning: Policy impacts exceed expectations, market volatility intensifies, interest rates decline, and the impact of major disasters exceeds expectations.