① Over the past ten years, treasury bond yields have been below the upper limit of insurance product pricing interest rates for a long time. At the same time, along with the continuous narrowing of the yield on the insurance asset side, the industry faces a certain risk of interest spreads and losses. ② Building a big health strategy and adhering to the big health path is the top priority of China Merchants Xinnuo's current strategic goals, and it is also China Merchants Xinnuo's trump card for crossing the economic cycle.
Financial Services Association, September 14 (Reporter Zou Juntao) On September 13, the 2nd China Financial Industry Annual Conference and “Topology Award” award ceremony hosted by the Financial Association was held in Lujiazui, Shanghai. Representatives from dozens of financial institutions from various financial fields such as banks, insurance, trusts, and financial managers gathered together to have lively discussions and in-depth exchanges on the theme of “Pioneering a New Stage of Financial Development”.
Liu Wenjing, Chief Financial Officer of China Merchants Cigna Life, attended the conference and gave a presentation entitled “How far are life insurance companies from “interest loss”? How to deal with it?》 Keynote speech. Liu Wenjing pointed out that in the past ten years, treasury bond yields have been below the upper limit of insurance product pricing interest rates for a long time. At the same time, along with the continuous narrowing of insurance asset-side returns, the industry faces a certain risk of interest spreads and losses. However, with the timely action of the regulatory authorities, the pricing interest rate was lowered from 3.5% to 3%, and then to the current 2.5%, which greatly mitigated the risk of interest spreads and losses to a certain extent.
The life insurance industry is gradually moving from “interest spread overflow” to “interest spread loss”
According to Liu Wenjing's analysis, between 2002 and 2012, China's real estate industry achieved a high boom, while the GDP growth rate was also in a period of high growth. Although the yield on 10-year treasury bonds fluctuated at that time, it basically remained around 4%. Overall, due to the rapid development of the real estate industry and financing needs, insurance companies were generally able to obtain a return on investment of 5% or more at the time; if they were willing to invest in non-standard bonds and adopt a credit decline strategy, the yield could reach a higher level. Liu Wenjing believes that during the above period, China's insurance industry as a whole was still in the “interest spread overflow” stage.
At the same time, around 2012, the regulation adopted a management strategy of “liberalizing the front end and controlling the back end” for the insurance industry. That is, within the upper limit of the pricing interest rate, insurance companies can decide the pricing interest rate for each product themselves. To a certain extent, this has also exacerbated the continuous rise in the overall pricing interest rate of the industry.
As the real estate market overheated around 2012, the government introduced a series of policy tightening measures. At the same time, the central bank expanded the money supply in 2014, causing market interest rates to continue to fall.
“At the time, the estimated return on investment for the intrinsic value of our insurance products was 4.025%, but the market interest rate had already dropped to 2.66%, which would cause a certain amount of interest loss in between.” Liu Wenjing further pointed out.
In response to the continuous decline in interest rates in recent years, the regulatory authorities have also continued to introduce new policies to help insurance companies adapt to the trend. For example, in September of this year, regulations issued new regulations requiring that the pricing interest rate for traditional life insurance products be reduced from 3.0% to 2.5%; at the same time, since the beginning of the year, regulations have also set certain restrictions on banking insurance channel fees (that is, “integration of reporting and banking”). Liu Wenjing said that the pricing interest rate for insurance companies' traditional products dropped from 3.0% to 2.5%, which lays a very deep foundation for the vigorous development of insurance companies. At the same time, regulatory restrictions on a series of channels, such as operating loans and agency channels, are also conducive to encouraging insurance companies to strengthen the detailed management of expenses.
However, Liu Wenjing also pointed out that the “profit margin loss” is a “gray rhinoceros” that the industry is currently facing. What we need to do is see the gray rhino approaching from afar, but through active efforts, we hope this gray rhino will never become a reality. This is a result of everyone's current efforts to achieve.
Adhere to the big health strategy to get through the cycle
Regarding how China Merchants Cigna will deal with the risk of “profit differences and losses,” Liu Wenjing said that one of China Merchants Cigna's important competitive differentiation strategy is to create a big health strategy and stick to the big health path. This is the top priority of China Merchants Xinnuo's current strategic goals, and it is also China Merchants Xinnuo's trump card for crossing the economic cycle. In terms of health insurance, China Merchants Xinnuo's focus is to lay out medical insurance, while integrating into China Merchants Bank's customer management system to empower life insurance products through the Novo + Health Service System
Liu Wenjing said, “We are strengthening the differentiated value contribution of the entire life insurance product through a series of health products and services to help China Merchants Xinnuo survive the cold economic winter.”
In addition to discussing the topic of “profit and loss,” Liu Wenjing also gave her own views on the current macroeconomy in her speech. Liu Wenjing pointed out that currently the market is facing strong expectations of interest rate cuts. On the one hand, internationally, the US interest rate cut window has been opened; domestic social finance growth has stabilized in stages, but credit financing is still sluggish, and the pattern of weak demand has not changed. Furthermore, investment, exports, and consumption are under pressure. Liu Wenjing predicts that the possibility that the central bank will further cut interest rates to stimulate the economy will increase.
However, Liu Wenjing believes that despite increased expectations of interest rate cuts, the central bank is still very caring about interest rates on long-term treasury bonds. She said that after the Federal Reserve cuts interest rates in the future, our long-term treasury bonds should remain very stable in a volatile range, which brings a glimmer of light to our life insurance industry in the cold winter.