The root cause of the mismatch on the liability side is the business assessment pressure represented by the premium scale and NBV. During the interest rate downturn, the difference between the growth rate of new business profits and the new business value growth rate appears. More attention should be paid to the growth of value that can be achieved through investment returns.
Ckt Holdings learned from the Gtja app that the equity market recovery has boosted short-term investment performance, driving current profit improvement. During the interest rate downturn period, insurance companies should focus more on the realizability of profits, strengthen asset-liability matching, and stabilize dividend expectations. After the new criteria, listed insurance companies' core financials and dividend indicators show increased uncertainty in net profit growth, net asset growth, and shareholder dividend distribution rate. As the proportion of traditional insurance increases, the mismatch between assets and liabilities of insurance companies is the main reason for the increased uncertainty in core financials and dividend indicators, and an assessment system targeting premium scale and short-term profits is the root cause of insurance companies' asset-liability mismatch.
GTJA's main opinions include:
After the new criteria, the core financials and dividend indicators of listed insurance companies show three increased uncertainties.
1) The uncertainty of net profit growth has increased, with the divergence between short-term profit growth driven by investment services and the pressure on future profit growth.
2) The uncertainty in net asset growth has increased, with a discrepancy between high net profit growth and low net asset growth.
3) The uncertainty in shareholder dividend distribution rate has increased, with solvency under pressure under new capital supervision rules, affecting the stability of shareholder returns.
The main reason for the increase in uncertainty in core financial and dividend indicators is the mismatch between assets and liabilities caused by the increase in the proportion of traditional insurance.
The uncertainty in the growth of net income has increased. The main reason is that in a situation of severe fluctuations in the investment environment, when the assets and liabilities of insurance companies are not fully matched, fluctuations in investment income may occur that cannot be absorbed by the liability side.
The uncertainty in the growth of net assets has increased, with a deviation between high growth in net income and low growth in net assets. The increase in the proportion of traditional insurance leads to greater pressure on the asset-liability matching of BBA liabilities, and the lack of long-duration assets as well as the excessively high proportion of OCI stocks can lead to uncertainty in the growth of net assets.
The uncertainty in the shareholder dividend payout ratio has increased. If the new accounting standards are consistent with the capital regulatory standards, the uncertainty in the solvency of insurance companies in the future will increase, affecting the shareholder dividend payout ratio.
During a period of declining interest rates, attention should be paid to the linkage between assets and liabilities to enhance the stability of shareholder returns.
The assessment system focused on premium scale and short-term profits is the root cause of the mismatch between insurance companies' assets and liabilities.
The root cause of the mismatch on the liability side is the business performance pressure represented by premium scale and NBV, in a period of declining interest rates under which the difference between the growth rate of new business profits and the growth rate of new business value appears. More attention should be paid to the growth of value achievable through the investment yield.
Insurance companies should establish a more rigorous assessment system focusing on the long-term profitability feasibility. The business model should pay attention to the linkage between assets and liabilities, and shareholder returns should be linked to stable dividend expectations achievable through OPAT.
Investment advice: It is recommended to increase holdings in assets with greater flexibility, such as China Life Insurance (02628, 601628.SH), New China Life Insurance (01336, 601336.SH), as well as shareholders with stable net income, such as China Pacific Insurance (02601, 601601.SH), Ping An Insurance (02318, 601318.SH), and PICC Group (01339).
Risk warning: Downward trend in long-term interest rates; rising cost of liabilities; market volatility in equity markets.
