CITIC SEC: The long-term upward trend of the insurance industry remains unchanged, focusing on dividend advantage stocks.

CITIC SEC released a research report stating that the market style is evolving to the extreme, with significant volatility in the insurance sector's performance. In the first half of the year, there was a significant differentiation in the performance of the insurance sector, and it is expected that there will be negative growth pressure on overall profits in the second half of the year. High beta varieties may face significant pressure for stock price adjustments. The investment strategy focuses on dividend advantage varieties. The long-term upward trend of the industry has not changed, with a focus on the resource advantages and service capabilities of leading companies, which will become core competitive strengths. Attention should be paid to the local trials and national implementation of coordinated policies between commercial insurance and medical insurance, which are expected to drive sustained growth in health insurance. The main viewpoints of CITIC SEC are as follows: In the first half of the year, the performance of insurance companies showed significant differentiation, and it is expected that the market will pay more attention to the stability of performance and the sustainability of dividends in the second half of the year. The short-term performance differentiation in the insurance sector is mainly due to significant differences in the equity positions and holding styles of various companies, resulting in different quarterly profit elasticities. Influenced by the proportion of equity assets held, holding styles, and accounting methods, in extreme market styles, the mid-term performances of various companies in their interim reports show significant differentiation, and targeted judgments need to be made in conjunction with market styles. The extreme tech stock style in the second quarter of 2026 has been fully reflected in performance, and the bank predicts that the insurance sector as a whole will face the impact of high bases and market style switches from the same period last year in the second half of the year. In the short term, the focus should return to the long-term sustainability of asset-liability matching, the stability of core capital and equity positions, cost control on liabilities, policy value rate improvement, and value growth of new businesses on the liabilities side. In the long term, the insurance industry's long-term upward trend has been established, and key indicators such as new single premiums, new business values, total investment assets, and total assets are expected to maintain double-digit growth rates in the long term. The core driver of long-term growth lies in the relative return advantages of dividend insurance products in a low-interest rate environment, combined with stricter regulations that accelerate market share concentration towards leading companies. Strict regulatory measures against internal competition have intensified the trend of product homogenization, with little difference in product yield rates and cost rates. In the context of an aging population and fiscal pressure, large insurance companies are deepening their involvement in the construction of public service systems such as healthcare and old-age care, shifting their competitive barriers from product yield to service integration capabilities. This trend is expected to continue for 3-5 years; at the same time, the downward trend in liabilities costs and stable asset allocations (increased allocation of long-term government bonds, high dividend stocks, and participation in the southbound bond of Hong Kong) ensure the sustainability of interest rate differentials, and the profitability of leading companies has high certainty. Movement of savings deposits and concentration of market share are expected to drive key indicators such as new single premiums, new business values, total assets to maintain double-digit growth rates. The coordinated development of medical insurance and commercial insurance has become a catalyst for health insurance and the sector. Since 2026, China's system for the coordinated development of medical insurance and commercial insurance policies has been accelerating, with dual efforts in top-level design and practical implementation. At the strategic level, on July 13, the State Council issued the "National Health '15-Year' Plan" (Guofa [2026] No. 23), which clearly outlines the construction of a full life cycle health service system, strengthening the coordination of medical care, medical insurance, and disease control, and vigorously developing the health industry, providing a guiding framework for the construction of a multi-level medical security system. At the implementation level, on May 31, the National Medical Insurance Bureau released the Work Plan for the adjustment of the 2026 Drug Catalog, which is the second round of "double catalog" coordinated adjustment after the implementation of the first edition of the commercial insurance innovative drug catalog in 2025. Adhering to the adjustment mindset of filling gaps, optimizing structure, and encouraging innovation, it strengthens the linkage effect between strategic medical insurance purchases and commercial insurance supplementary protection. Beijing and Shanghai have taken the lead in forming differentiated landing paradigms, which are expected to be promoted nationwide in the future. In February 2026, the Beijing Municipal Medical Insurance Bureau and 9 other departments jointly issued the "Several Measures to Support the High-Quality Development of Commercial Health Insurance in Beijing", focusing on institutional connections and gradient building of guarantees: 1) Promoting the integration of medical insurance and commercial insurance services: Supporting the replication and promotion of the national's first "medical insurance + commercial insurance" division settlement center in Xicheng District (launched in July 2025, already piloted at major tertiary hospitals such as Beijing Union Hospital), achieving "settlement equals claims" - direct payment settlement on the spot, rapid claims settlement within two to three days; upgrading the "Beijing Affordable Health Insurance" in 2026 to expand its special drugs list to 159 types, covering 87 disease species, including for the first time advanced therapies such as CAR-T, while lowering the deductible and increasing the reimbursement ratio. 2) Removing barriers to innovative drug entry into hospitals: Establishing a platform for regular communication between commercial insurance companies and innovative drug companies, allowing innovative drugs covered by commercial insurance to be quickly included without being included in medical insurance self-pay rate assessments, and not subject to restrictions of "one brand, two rules", with the costs of eligible new drugs and technologies not included in DRG group payment standards, but paid separately, alleviating hospital concerns about using high-value innovative drugs. 3) Creating replicable models: Leveraging the data and settlement barriers between medical insurance and commercial insurance through the division settlement center, serving as a demonstration for the construction of a multi-level medical security system nationwide. Shanghai has shifted from institutional construction to landing the payment closed-loop, accelerating the integration of data sharing, innovative payment, and drug access mechanisms. On July 29, 2025, the Shanghai Financial Regulatory Bureau and 7 other departments jointly issued the "Several Measures to Promote the High-Quality Development of Commercial Health Insurance to Boost Innovation in the Biomedical Industry" (Shanghai Finance [2025] No. 43), forming a paradigm of "data empowerment + innovation payment closed-loop": 1) Optimizing the use of accumulated funds from individual medical insurance accounts to purchase commercial insurance and promoting the support of group health insurance through individual accounts, providing "one-code claim" and direct payment services; 2) Exploring the risk adjustment mechanism of pooled operations in the insurance industry and the cost calculation of multi-year operations, promoting collective drug price negotiations between insurance companies and pharmaceutical companies, payment by treatment effectiveness, installment payments, and advancing the coverage of secondary and tertiary hospitals on the existing medical insurance and commercial insurance synchronous settlement platform (launched in July 2024, with the first batch of 12 major tertiary hospitals fully operational by the end of September). 3) Deepening data sharing in medical, medical insurance, and commercial insurance under the premise of data security and privacy protection, supporting the inclusion of the elderly, those with previous conditions, and chronic patients into the protection, and piloting disease-related insurance in a "regulatory sandbox" to fill gaps in protection. In 2026, Shanghai transitioned to the execution stage: the 2026 version of the "Shanghai Wellness Insurance" expanded to include 50 domestic special drugs, for the first time including domestic CAR-T products; the first edition of the commercial insurance innovative drug catalog achieved complete access in municipal hospitals and moved in line with national commercial insurance exploration, medical insurance relief in the new policy direction, opening up the gradient admission channel from the commercial insurance catalog to the medical insurance catalog. Risk Factors: Insurance company profits are affected by stock market fluctuations and the impact of high bases leading to negative growth; as base effects increase, the pace of policy sales growth slows down; interest rates are expected to continue to decline in the medium to long term.