Amid Long-Term Decline in Interest Rates, Insurers Struggle to Find Suitable Assets (AI Translation)
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文｜财新周刊 吴雨俭
By Caixin Weekly's Wu Yujian
保险行业在不断降低负债端成本的同时，其投资端的保险资金运用，也正面临一场异常艰巨的“持久战”。
As the insurance industry continues to reduce the cost of liabilities, its investment arm is also facing a daunting "protracted battle" in managing insurance funds.
外界关注的或许仅是近两年的权益市场波动，尤其是自2023年二季度起，权益市场持续下跌，沪深300指数全年下跌约11.4%，对保险公司净利润造成压力。但除此之外，包括十年期国债在内的无风险利率中枢持续下行，以及非标固收的“资产荒”，都给长久期的保险资金投资收益带来了巨大压力。
While external observers may focus primarily on the recent fluctuations in the equity markets, particularly since the second quarter of 2023 when there was a persistent decline, with the CSI 300 Index falling by approximately 11.4% for the year, this has put pressure on the net profits of insurance companies. However, beyond this, there are other significant pressures on long-duration insurance fund investment returns. These include a continuous downward trend in the risk-free rate center, including ten-year government bonds, as well as a "scarcity of assets" in non-standard fixed income investments.
从保险资金的配置情况来看，2023年对债券持有的比例突破45%，创下近十年来的新高；但长端利率下行也引发市场对于保险投资收益率中枢不断下移的担忧。
From the perspective of insurance fund allocation, in 2023, the proportion of bond holdings exceeded 45%, reaching a new high in nearly a decade. However, the downward trend in long-term interest rates has also sparked market concerns about the continuous decline in the central yield of insurance investments.
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- The insurance industry faces significant challenges in managing investment returns due to persistent declines in equity markets and low-risk interest rates, with the CSI 300 index falling by approximately 11.4% in a year, impacting net profits of insurance companies.
- In response to these challenges, insurance funds have increased their bond holdings to over 45% in 2023, reaching a ten-year high, as bonds serve as a stabilizing force amidst volatile equity markets and help bridge asset-liability duration gaps.
- Insurance companies are also adapting by reducing liability costs through lower product predetermined rates and expenses, while diversifying investments into foreign bonds and equities based on practices observed in international markets like the US, Japan, and the UK.
The insurance industry is grappling with challenges in managing investment funds due to a persistent decline in equity markets and a continuous downward trend in risk-free interest rates, such as those of ten-year government bonds. This situation has been exacerbated by a scarcity of assets in non-standard fixed income investments [para. 1].
In response to these challenges, insurance companies have varied their strategies based on regional experiences. For example, U.S. insurers have diversified their fixed-income assets and pursued higher yields through credit downgrades, while insurers in Japan and Taiwan have boosted returns by investing heavily in overseas bonds. In contrast, UK and Singaporean firms have leaned towards equities [para. 1].
Despite efforts to enhance investment returns, insurance companies are also focused on reducing liability costs by lowering preset interest rates on products and decreasing sales of traditional products with guaranteed features. This shift comes as the yield on ten-year government bonds has fallen below the guaranteed interest rates of major insurers, widening the "spread scissors" [para. 1].
Chinese insurance companies are advised to optimize asset allocation by implementing effective asset-liability management, enhancing forward-looking analysis of interest rate trends, and placing strategic importance on equity assets to mitigate risks associated with spread losses [para. 1].
The proportion of bond holdings among Chinese insurers reached over 45% in 2023, setting a decade-high record amidst falling long-term interest rates. The increase primarily involved government bonds due to their long duration and tax-exempt status. However, this shift towards lower-risk investments has sparked concerns about declining yields central to insurance investments [para. 2].
Industry experts suggest that facing long-term downward pressure on interest rates requires adopting diverse strategies tailored to local conditions rather than directly replicating foreign models. Challenges include limited depth in China's bond market and constraints on overseas investments due to quota controls and currency risk hedging issues [para. 2].
Amidst an "asset shortage," there's been a noticeable shift from non-standard to standard investments like bonds and stocks within the insurance sector. This change aims at stabilizing returns despite lower yields from non-standard assets which were previously bolstered by high-quality offerings from real estate sectors [para. 3].
Regulatory changes in 2023 aimed at encouraging long-term capital inflow into markets have included optimizing solvency standards for insurance products and adjusting risk factors for certain stock investments. Despite these efforts, returns on equity assets remain below expectations for many insurers [para. 3].
On the liability side, there's been a concerted effort since late 2021 to reduce costs through measures like lowering assumed interest rates for life insurance products. These adjustments are crucial as they help manage long-term liability costs amid changing market conditions [para. 4].
Overall, the industry faces significant pressures both from investment challenges related to low-interest rates and liabilities management requiring careful balancing of product offerings against financial realities. Moving forward, leveraging long-term capital advantages through innovative product offerings could be key for sustaining profitability under prevailing economic conditions [para. 4].
- China Life Insurance
中国人寿 - China Life Insurance, along with New China Life Insurance, jointly invested 50 billion yuan to establish a private equity fund aimed at supporting long-term stock investments. This initiative is part of broader regulatory efforts to encourage insurance funds to invest in the market, enhancing investor confidence and stabilizing investment returns amidst challenges like persistently low interest rates and the need for strategic asset allocation adjustments.
- New China Life Insurance
新华保险 - New China Life Insurance, mentioned in the context of its investment strategies, had a significant proportion of non-standard assets in 2017, reaching up to 35% with yields around 5%. However, by the first half of 2023, this exposure was reduced to 14.6% due to lower yields on these assets, which fell below 4%, such as in trust plans and bond plans. This shift reflects the broader trend within the insurance industry towards more standardized asset allocations.
- China Pacific Insurance
中国太保 - The article does not specifically mention China Pacific Insurance. It focuses on general trends and strategies within the Chinese insurance industry, such as asset allocation shifts, investment challenges due to low interest rates, and regulatory changes affecting the industry. It discusses various measures taken by insurance companies to manage liabilities and investments but does not detail individual companies like China Pacific Insurance.
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