On September 20th, Caixin Securities News (Reporter Guo Zishuo) reported that in 2023, China's insurance industry's total assets reached the 30 trillion yuan mark. In the past two years, the government, regulatory agencies, and the market have repeatedly called for the cultivation of insurance funds into patient capital. The so-called patient capital emphasizes long-term and value investments, which can innovate and provide long-term funding support for development, helping to stabilize and prosper the market.

Today, at the second Xiangmihu Wealth Management Forum and the establishment meeting of the Shenzhen Wealth Management Association, Xie Yonglin, General Manager and Co-CEO of Ping An Group, introduced from a practical perspective the thoughts and practices of insurance in cultivating patient capital, as well as the challenges in the actual application of insurance funds.

Insurance funds and patient capital are naturally matched.

In Xie Yonglin's view, the three important characteristics of insurance funds are 'long cycle', 'high stability', and 'large scale', which also constitute the prerequisite for patient capital. Xie Yonglin introduced that insurance products have high stability, with a time difference between payment and payout of up to decades or longer. Superimposed with insurance products being paid annually, insurance funds do not have frequent 'large inflows and outflows', with relatively stable cash flow expectations. Taking Ping An as an example, including reinvestment, Ping An Group's annual investment income + premium renewal amounts to five to six hundred billion yuan each year. These three attributes make insurance funds naturally have the conditions to become patient capital, with great potential in serving national strategies, supporting the real economy, and promoting the birth of new high-quality productivity.

Regarding the direction of the use of insurance funds, the long-term and stable nature of insurance funds is conducive to enhancing investment coherence, becoming a cornerstone of the capital market, and through the resource allocation function of the capital market, insurance funds can provide a source of fresh water for the real economy through direct financing instruments. In addition, not only traditional infrastructure, rental income, property, and other relatively mature assets, but also the long-term characteristic of insurance funds can effectively fill the financing gap in the early stage of development for technology innovation enterprises, accompany the growth of science and technology enterprises, and accelerate the cultivation and growth of new high-quality productivity.

However, Xie Yonglin also admitted that compared with other patient capitals, the actual use of insurance funds also faces three major challenges.

However, Xie Yonglin also admitted that compared with other patient capitals, the actual use of insurance funds also faces three major challenges.

First, there is a contradiction between stable safety and market volatility. Insurance funds act as a shock absorber for the economy and stabilizer for society, as well as lbx pharmacy chain joint stock's retirement money, which requires high security and stability. However, when insurance funds invest in the capital markets, they are easily affected by stock price fluctuations. According to the new accounting standards, equity market price fluctuations will directly affect the net income, net assets, solvency, and investment income of insurance companies. Short-term market fluctuations will to some extent affect the effectiveness of insurance fund allocation in the capital markets.

Second, there is a contradiction between the rigid costs of insurance funds and the pressure on asset returns. After the new asset management regulations, banking wealth management and REITs products broke the buck, while insurance products still have guaranteed returns. Currently, the average cost of guaranteed liabilities for listed insurance companies is close to 3%, and many technology startups have no initial profits and a long return cycle, putting pressure on investment returns for insurance funds.

Xie Yonglin said: 'Regulators have always attached great importance to the issue of spreads in the insurance industry, which is also the industry's biggest gray rhino. However, many technology startups basically have no profits in the early stages, and the return period may be relatively long, which will put certain pressure on the investment returns of insurance funds.'

Third, there is a contradiction between traditional investment capabilities and the investment requirements under new circumstances. Under the traditional model, insurance companies prefer to invest in mature assets, which have predictable cash flows and sufficient risk mitigation measures. However, there are still shortcomings in the research and investment capabilities of insurance companies for new productive forces represented by technology startups, leading to the situation where insurance companies want to invest in new productive forces but are unable to do so.

Based on the above issues, relevant regulatory authorities have introduced multiple policies to guide insurance funds towards long-term investments, supporting technological innovation and industrial upgrading. This includes adjusting solvency regulatory standards, allowing insurance funds to invest in private equity funds of non-insurance financial institutions, and lifting restrictions related to investing in technology startups. Additionally, the China Banking and Insurance Regulatory Commission has twice lowered the guaranteed interest rates of insurance products, from 3.5% to 2.5%, reducing the rigid liability costs of insurance companies, easing the pressure on the investment side, and leaving more flexibility for long-term investments.

Reform and innovate to enhance the quality and efficiency of long-term investment by insurance funds.

In promoting insurance funds as patient capital, Xie Yonglin proposed four key words: 'strong awareness,' 'addressing weaknesses,' 'building an ecosystem,' and 'creating a favorable environment.' Among them, 'strong awareness' refers to the large scale and long duration of insurance funds, closely related to national economic development, requiring the promotion of the use of insurance funds in line with national global strategy direction. 'Addressing weaknesses' means that insurance companies should optimize pathways for situations where they are unwilling or unable to invest, including strengthening industry research capabilities, optimizing internal mechanisms to improve investment efficiency, providing a certain margin for error and long-term assessment mechanisms.

Xie Yonglin explains, 'Building an ecosystem' means using insurance funds to help build a 'capital + capacity' ecosystem, enhancing investment returns and benefits. For example, Ping An Group cooperates with many leading investment institutions to carry out investments in new productive forces, covering areas such as new energy, AI, biopharmaceuticals, and low-orbit economy. In the future, it will expand to core companies in the industry chain, university research institutions, etc., bringing together the elements needed for patient capital cultivation, making insurance funds more professional, larger in scale, and more sustainable when performing the function of patient capital.'

"In terms of 'excellent environment', insurance companies will continue to provide suggestions to regulatory agencies, continuously optimize the policy environment for nurturing patient capital. For example, Ping An optimizes the equity method recognition criteria, conducts equity method accounting for high-quality state-owned enterprise stocks, avoids the impact of short-term stock price fluctuations on investment income, and solves post-investment concerns for insurance funds entering the market." Xie Yonglin pointed out that in the long run, we can also explore measures such as introducing tax preferential policies, strengthening the linkage between primary and secondary markets, encouraging investments in long-term dividend products, to create a cycle path for long-term investment and value investment, and promote insurance funds to play a greater role in supporting entities and fostering new high-quality productivity.