Zhongtai: Annualized total investment return on insurance funds at 1.44%; bullish on opportunities to position in the insurance sector after the A-share market stabilizes at the bottom.

Zhongtai released a research report stating that from the policy bottom to the market bottom, it is bullish on opportunities to position in the insurance sector after the A-share market stabilizes at the bottom combined with the landing of 3Q26 quarterly reports. The current structure of the sector is relatively clean, and it has certain dividend defensive attributes within the market's bottom-range oscillation, especially for leading large insurers linked to operating profit dividends, where current dividend value is quite attractive. Zhongtai's main views are as follows: Simulating and forecasting the industry's investment return rate for the next three years through an insurance fund utilization return rate index system The bank first estimates the "new money yield" (NMII) level based on the insurance fund's major asset allocation structure, combined with current yields on various assets (including bond yields to maturity, stock dividend yields, average return on long-term equity investments, expected trust yields, etc.); secondly, based on the average duration of insurance funds and the scale of net cash flow (the difference between new premium inflows and payouts on existing policies), the bank assumes the existing net investment return rate is the 6-year average of the above major asset yields, deriving the industry average net investment yield (NII); finally, the bank combines the trading price spread of financial assets held for trading (non-annualized) to derive the total investment yield (TII). In summary, the bank calculates that the current annualized new money yield level is approximately 2.57%; the industry average net investment yields for 2025-2027 are 3.35%, 3.15%, and 2.92%, respectively. Insurance funds' TII year-to-date this period is 1.44%, at the 1.54% historical percentile of the past decade (since 2016) According to calculations, this period's (October 2026) simulated new money yield for insurance funds is 2.57% (previous period 2.57%, same period last year 2.73%); this period's simulated net investment yield is 3.20% (previous period 3.18%, same period last year 3.35%); this period's simulated annualized total investment yield is 1.44% (previous period 3.13%, same period last year 6.91%). The reason the total investment yield is lower than the net investment yield is that this period's trading price spread of financial assets held for tradingnon-annualizedreached -11.01% (previous period -0.34%, same period last year 23.79%). Fixed-income asset yield tracking: yields to maturity oscillate lower, term spreads narrow. According to the bank's calculations, this period's average bond NMII is 1.74%, and the existing NII is 2.66%; the adjusted average yield on new deposits is 1.62%, and the existing yield is 2.33%; according to data from Use Trust, the average expected annualized yield of non-standard asset management trusts is 4.55%. From the perspective of incremental allocation by tenor since 2026, local government bonds 20-30Y, negotiable certificates of deposit 9M-1Y, local government bonds 15-20Y, treasury bonds >30Y, and credit bonds 1-3Y are the top five in total increased allocation. Equity asset yield tracking: indices declined, marginally stabilizing at month-end. In October, under geopolitical and AI industry disturbances, risk aversion heated up at home and abroad; at month-end, A-share policy bottom signals were strong. According to the bank's calculations, from the beginning of 2026 to the end of October, the investment return rate on insurance fund equity funds was -12.7% (25.4% in the same period of 2025). This period's Shanghai-Shenzhen-Hong Kong weighted dividend yield is estimated at 3.39%. According to iFinD statistics, the 3Q26 CSI 300 weighted average ROE (TTM) is approximately 9.12%. This period, insurance funds as major shareholders significantly reduced equity changes in Hong Kong-listed companies, which the bank believes is mainly related to fewer trading days in October and relatively poor equity market performance. Only Guohua Life confirmed its first equity interest following the listing of ESWIN COMPUTING's new shares. This period's top ten stocks with the highest frequency of insurance fund research are Eoptolink Technology Inc., Suzhou TFC Optical Communication, Beijing Haitian Ruisheng Science Technology Ltd., Sharetronic Data Technology, Shenzhen Everbest Machinery Industry, Victory Giant Technology, Shenzhen Mindray Bio-Medical Electronics, Yuanjie Semiconductor Technology, Zhongji Innolight, and Giantec Semiconductor Corporation. New regulations on insurance company assets and liabilities are reshaping the industry's operating logic; the bank calculates the trend of major indicators month by month based on a monthly report model 1) From the perspective of net investment return coverage, at end-2026 the industry's guaranteed liability cost, break-even asset guarantee cost (considering equity factors), and net investment yield (excluding long-term equity investments) are 2.75%, 2.50%, and 2.97%, respectively. The spread still has a certain safety cushion, but in recent years the net investment yield has declined relatively more. 2) From the perspective of the four spread indicators of life insurers, in October 2026, the rigid liability cost of new business and the yield to maturity of newly added fixed-income assets are 1.79% and 1.74%, respectively, and the safety cushion shows signs of being breached; it cannot be ruled out that there will be pressure for a small adjustment to the assumed interest rate in 2027. 3) From the perspective of life insurers' comprehensive investment return coverage, this period's [NII spread, i.e., the difference between the annualized net investment yield of insurance funds and the break-even asset cost] is 38bps (previous period 36bps, same period last year 44bps); [TII spread, i.e., the difference between the annualized total investment yield of insurance funds and the break-even asset cost] is -138bps (previous period 31bps, same period last year 400bps). Risk warnings: Calculation results are subject to constraints of data availability and reasonableness of assumptions, with risk of deviation; macroeconomic recovery below expectations, long-end interest rates falling rapidly and sharply; increased volatility in equity markets.