Founder: 3Q26 assumed interest rate assessment value may be 1.93%; maintain recommended rating for the insurance industry

Founder released a research report maintaining the recommended rating for the insurance industry. Valuation: As of the 10/8 close, the average static PEV of the four A-share insurers is 0.61x, at a relatively low historical percentile, with limited downside risk. Asset side: The equity market was volatile in Q3, but falling interest rates and bond floating gains may help reduce investment portfolio volatility. Liability side: The August premium base has passed its second-highest point, and as the base returns to normal levels in September, premium growth is expected to continue improving. The gradual implementation of the "report-and-execute consistency" policy in the bancassurance channel will further optimize liability-side costs, enhance product NBVM, and the expectation of long-term improvement in insurers' business quality remains intact. Founder's main points are as follows: Event Recently, the Insurance Association of China organized or will hold in October the 3Q26 regular meeting of the Expert Advisory Committee on the Assessment Interest Rate for Liability Reserves of the Life Insurance Industry. This report estimates that the 3Q26 assumed interest rate assessment value may be 1.93%, down 1bp QoQ from the previous quarter. The 4Q26 life insurance assumed interest rate is expected to remain at 2.0%, and no assumed interest rate adjustment is expected this year. Assessment value expected to begin trending downward due to the decline in 10-year government bond yields According to the Notice on Matters Related to Establishing a Linkage and Dynamic Adjustment Mechanism Between Assumed Interest Rates and Market Interest Rates issued by the National Financial Regulatory Administration: When the maximum assumed interest rate of ordinary life insurance products on sale (currently 2.0%) exceeds the assumed interest rate research value (1.93% in 1Q26, estimated at 1.94% in 2Q26) by 25bp or more for two consecutive quarters, the maximum assumed interest rate of new products must be lowered in a timely manner, and a smooth transition between old and new products must be completed within 2 months. The October assumed interest rate assessment announcement date is expected not to trigger the conditions for industry pricing rate adjustment, but due to the recent continuous decline in 10-year government bond yields, the assumed interest rate assessment value may resume a downward trend, though the magnitude of decline is relatively limited. The adjustment conditions are not expected to be met within the year. If interest rates remain at current levels for an extended period, the industry may discuss pricing rate adjustment events again in 2027. This year's reduction in new business costs mainly comes from differentiated management across companies The previous assumed interest rate cut was at the end of August 2025, and pricing rates have not been adjusted for over a year since then. From the perspective of marginal changes, this year's cost reduction mainly comes from companies' proactive management: First, the continued advancement of "report-and-execute consistency": In March this year, the regulatory authorities issued the Notice on Matters Related to Further Strengthening Fee Management in Bank Agency Channels to life insurance companies, refining fees into four categories: commissions paid to banks, compensation incentives for bancassurance specialists, training and customer service fees, and allocated fixed expenses, further refining the "report-and-execute consistency" requirements for bank agency channels. The continued increase in the industry's bancassurance channel share will drive sales efficiency to a higher level. Second, proactively lowering the guaranteed interest rate of participating insurance products: This year, the industry's main products remain participating insurance with a 1.75% guaranteed interest rate and traditional insurance with a 2% guaranteed interest rate. However, some companies, such as Sino-British Life, have begun piloting participating insurance with a 1.25% guaranteed interest rate. Proactively lowering the guaranteed interest rate will bring significant reductions in new business costs, but the market still prefers products with higher guaranteed interest rates. The new business and industry cost optimization from proactive reductions is expected to be relatively limited. Asset-liability matching continues to advance, with leading companies more stable This year, the equity market has been notably volatile, and life insurance companies' operations are expected to continue diverging through proactive management: First, on the liability side, leading companies' value continues to improve, mainly reflected in: Proactively extending payment periods. Taking China Life Insurance as an example, as of 1H26, first-year regular premiums with payment periods of ten years or more accounted for 20.1% of the company's new business, yoy+1.3pct; Building pension and health ecosystems. Listed companies all have health management foundations and resource integration capabilities. As the scale of health insurance increases in the future, the higher NBVM of protection-type products is expected to drive further value improvement. Second, on the asset side, the first quarterly report and annual report under the new asset-liability regulations are the 2026 Q4 report and the 2026 annual report, respectively. Leading companies are expected to have reached relatively satisfactory levels in duration matching and risk management, making the stability of long-term operations more controllable. Risk warnings: 1) Significant decline in the number of agents; 2) Equity market volatility and credit risk exposure; 3) Continued decline in interest rates.