China Merchants Securities released a research report stating that the investment assets of listed insurance companies account for a considerable portion of the industry, and the scale continued to grow steadily in the first half of 2024. The allocation structure remained balanced and stable, and the overall investment yield improved significantly.
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The main points of China Merchants Securities are as follows:
The investment asset size of listed insurance companies occupies a significant position in the industry. The scale continued to grow steadily in the first half of 2024, and the allocation structure remained balanced and stable. As of the end of June 2024, the balance of funds used in the insurance industry was 30.87 trillion, a year-on-year increase of 11.0%, with a net increase of 2709.4 billion since the beginning of the year. The combined investment scale of the main listed insurance companies (including China Life, Ping An Insurance, China Pacific Insurance, the People's Insurance, New China Life Insurance, China Taiping) accounted for 18.06 trillion, which represented 58.5% of the entire industry, a year-on-year increase of 13.4%, slightly higher than the industry average. In terms of allocation, based on the classification of investment types, the proportion of fixed income assets for the main listed insurance companies in the first half of 2024 was 76.4%, with bonds accounting for 57.7%, time deposits 7.2%, and cash and cash equivalents 2.2%; the proportion of equity assets was 22.5%, with stocks accounting for 7.1%, funds 4.7%, and long-term equity investments 3.9%; investment in real estate accounted for 1.1%; according to the accounting measurement classification, the proportion of FVTPL assets was 28.0%, FVOCI assets accounted for 50.9%, and other assets accounted for 21.1%. In terms of performance, the average annualized net investment yield of the main listed insurance companies in the first half of 2024 was 3.3%, a decrease of 0.6 percentage points from the beginning of the year, mainly affected by interest rate trends; the overall investment yield was 4.1%, an increase of 1.4 percentage points from the beginning of the year, mainly due to the good performance of high dividend strategy assets held; the annualized comprehensive investment yield also increased year-on-year, and was influenced by the bull market in bonds, which led to floating profits.
Specifically in stock investments, the net increase in the scale of high dividend stocks of the main listed insurance companies in the first half of 2024 was nearly a trillion. As of the end of the second quarter, the total stock holdings of the main listed insurance companies under the FVOCI category amounted to 355.219 billion, a net increase of 96.54 billion from the beginning of the year, accounting for 2.0% of the total investment assets, an increase of 0.4 percentage points from the beginning of the year, and 27.6% of the stock holdings, an increase of 5.4 percentage points from the beginning of the year. It is expected that this part of the assets are all high dividend stocks, and the actual holdings of high dividend stocks by the entire insurance industry may be even higher. By company, Ping An Insurance has the largest scale and highest proportion of high dividend stocks included in the OCI category, and China Taiping saw the largest increase in the proportion of OCI stocks in the first half of the year.
In terms of changes in holdings, insurance funds increased their positions in utilities and natural resources for two consecutive quarters, and the average dividend yield of heavily-weighted tradable stocks continued to rise. (1) Looking at marginal changes in holdings by primary industry, sectors with high dividend yields such as utilities (+1.4%), coal (+0.6%), and transportation (+0.6%) were all increased to different extents; while sectors such as banking (-1.3%), real estate (-0.5%), food and beverage (-0.4%), and autos (-0.3%) saw a decrease in their holding proportion compared to the previous quarter. With the banking sector reaching new highs, insurance funds reduced their positions in some banks in the second quarter. The preference of insurance funds for high dividend assets is not constant. With changes in industry fundamentals and company valuations, insurance funds can make differentiated choices. (2) As of the end of the second quarter, the average dividend yield of heavily-weighted tradable stocks by insurance funds was 2.5%, an increase of 0.4 percentage points from the beginning of the year and 0.7 percentage points from the same period last year, with the average dividend yields (TTM) in the sectors of banking, coal, and transportation, all above 4%. The top five holdings in terms of market value were Industrial Bank, Shanghai Pudong Development Bank, CM Bank, China Yangtze Power, and Minsheng Bank.
Attribution analysis shows that insurance funds substantially increased their allocation of high dividend stocks in the first half of the year, mainly due to the impact of changes in the investment environment and the implementation of new accounting standards. On one hand, the downward trend of interest rates and structural asset shortages have caused traditional high-yield assets to decrease in size or yield, making high dividend stocks, which combine stable returns and relatively controlled risks, an important way for insurance funds to obtain excess returns. Especially in the current market environment, the long-term value of stock assets has become more prominent, with the dividend yields of quite a few listed companies already much higher than the yield of the 10-year treasury bonds and the cost of insurance funds' liabilities. On the other hand, under the new accounting standards, insurance companies are no longer able to manage their financial statements through stock gains and losses. The significant impact of fair value changes on current profits increases. However, by designating high dividend stocks as FVOCI, insurance companies can keep the fluctuation of stock market values only reflected in the balance sheet, with only dividends entering the income statement, thereby reducing profit volatility.
Looking ahead, high-dividend stocks are expected to continue to be a key focus for insurance funds. From the demand side, the use of insurance funds faces new macro, market, and regulatory environments, and the volume of using the high-dividend strategy is expected to continue to grow. According to our calculation in the report on the impact analysis of insurance fund allocation behavior at the beginning of the year, the conservative estimate is that the proportion of OCI stocks in the total investment assets of the insurance industry will gradually increase to around 3% from 2024 to 2026. If the growth rate of the balance of insurance industry funds remains at an average of 10% in 2023, the incremental scale of high-dividend assets included in the FVOCI category by insurance funds from 2024 to 2026 is estimated to be about 680.5 billion. From the supply side, the target of high-dividend stocks is expected to continue to expand. In the future, with the continuous strengthening of the dividend awareness of listed companies driven by recent policy measures, the number and level of dividends of A/H-share high-dividend stocks are expected to stabilize and rise. At the same time, regulatory guidance continuously lowers the scheduled interest rate and liability cost of the insurance industry, and the standards for dividend yield and portfolio return on the asset side of insurance companies may be adjusted in a timely manner to meet the requirements of insurance funds. The scope of high-dividend stocks that meet the requirements will also continue to be dynamically adjusted.
Risk Warning: Data statistics are missing, and capital market fluctuations.