Guotai Haitong: Insurance industry Q3 research value declines; predetermined interest rate remains stable during the year

Guotai Haitong released a research report stating that it is optimistic about the stabilization and recovery of interest rates driving a valuation repair in the insurance sector. On the liability side, the phased decline in the growth rate of new single premiums for life insurance under a high base does not change the strong long-term demand trend for insurance savings, and improving the product term structure is conducive to supporting value growth; attention should be paid to the insurance sector's 2027 "good start" performance. On the asset side, profits are under phased pressure amid equity market volatility, and insurance companies are expected to dynamically adjust their equity and bond allocation strategies based on the external market environment to promote steady earnings and dividends. The current share prices reflect extremely pessimistic investment-side expectations, and with interest rates stabilizing and recovering, there is room for valuation repair among listed insurers. Maintain the industry "Overweight" rating. Guotai Haitong's main views are as follows: Event On November 4, the Insurance Association of China issued an announcement that on October 30 it organized the 2026 third-quarter meeting of the Expert Advisory Committee on Interest Rate Research for the Life Insurance Industry, and proposed that the current research value for the predetermined interest rate of ordinary life insurance products is 1.90%. The research value fell 4bp from the previous quarter, mainly affected by the decline in the 250-day moving average of the 10Y government bond yield 1) The 2026 third-quarter predetermined interest rate research value is 1.90%, down 4bp from 1.94% in the second quarter, ending the previous trend of recovery for two consecutive quarters, mainly because the decline in the 10Y government bond yield since Q2 led the 250-day moving average to begin falling. 2) The current predetermined interest rate research value is mainly based on the 250-day moving average of the 10Y government bond yield, with tax premium and coefficient adjustments considered. As of the end of Q3, the 250-day moving average of the 10Y government bond was 1.78%, and the predetermined interest rate research value was 12bp higher than the 250-day moving average. 3) As of November 4, the 10-year government bond yield was 1.61%, corresponding to 250-day and 750-day moving averages of 1.76% and 1.96%, respectively, down about 2bp and 3bp from September 30. If it is assumed that the 10Y government bond remains at 1.61% during the year, the research value is expected to decline further but is expected to remain above 1.75% 1) Assuming the 10Y government bond remains at 1.61% during the year, the bank estimates that the 250-day and 750-day moving averages at the end of Q4 will be 1.71% and 1.88%, down 7bp and 11bp from the end of Q3, respectively. However, considering that the research value is based on the 250-day moving average plus the impact of tax premium and coefficient adjustments, and referring to the Q3 research value being 12bp higher than the 250-day moving average, the Q4 research value is expected to decline further but is expected to remain above 1.75%. 2) The current maximum predetermined interest rate for ordinary life insurance products is 2.00%, 10bp higher than the research value, and has not yet reached the 25bp adjustment threshold. According to the dynamic adjustment mechanism based on the research value, if this maximum value remains unchanged, and the research value subsequently falls to 1.75% or below for two consecutive quarters, the downward adjustment mechanism will be triggered. Therefore, the bank expects the predetermined interest rate for life insurance to remain stable during the year. Risk warnings: decline in long-end interest rates; capital market volatility; liability cost control falling short of expectations.