Insurers Turn to Dividends to Counter Falling Interest Rates (AI Translation)

【周刊提前读】险企加推分红险应对利率下行 打破“类固收”仍有挑战

The article outlines the recent transformation of the Chinese life insurance industry, highlighting the resurgence and strategic significance of participating (with-profits/dividend-paying) insurance amid a prolonged low interest rate environment [para. 1]. Beginning April 2025, insurers including Dajia Pension, ReTa Life, and New China Life disclosed dividend realization rates for their 2024 participating policies, all of which met or exceeded 100%, boosting market confidence [para. 1]. Dividend insurance products blend guaranteed returns with performance-linked dividends, creating lower guaranteed liabilities for insurers while offering upside to policyholders based on investment results. A 100% or above dividend realization rate signifies that insurers fulfilled or surpassed the dividend projections at policy origination, showcasing management competence and product reliability [para. 2][para. 3].

The rebound in 2024 payout rates is partly attributed to improved investment returns, with insurers reporting financial investment yields of 3.48% and comprehensive yields rising to 7.45% (up 1.19 and 4.08 percentage points year-on-year, respectively) [para. 10]. Consulting firm “13 Actuaries” noted that participating insurance premium income returned to positive growth in 2024 after five years, with a rising share in new policies [para. 3]. Despite this, industry transformation faces challenges; individual insurance premium income grew only 0.2% year-on-year to 1.79 trillion yuan in Q1 2025, reflecting both structural and demand-side issues, including consumer acceptance and the risk of misleading sales [para. 4].

The supply side also confronts obstacles, as the current 0.5 percentage point spread between guaranteed rates for participating and traditional life insurance is insufficient to incentivize consumers, and short-term costs for participating products can be higher [para. 5]. Some experts suggest aligning guaranteed rates more closely as rates decline—potentially in Q3 2025—to enhance the allure of participating products, although others argue that cost reduction and efficiency gains demand deeper investment-side reforms [para. 6][para. 7].

Dividend payout rates notably dipped in 2023 due to investment volatility and regulatory “cap” directives constraining actual returns on universal and participating life policies; for some insurers, dividend realization rates fell to zero [para. 12][para. 13]. By 2025, as investment performance improved and impairments subsided, realization rates bounced back significantly for companies like Swiss Re Life—posting as high as 140%-150% on several products [para. 10][para. 11]. Nevertheless, many insurers continue to rely on internal subsidies to sustain dividend levels, sometimes at the expense of profitability [para. 18].

Participating insurance previously dominated China’s life insurance sector (peaking at 80% of premiums during 2001–2010), but share declined to 32% by 2021 due to sales abuses and other risks [para. 20]. However, in 2024, participating products reversed a multi-year contraction, achieving RMB 765.9 billion in premiums (+4.12% YOY), accounting for 19% of life insurance income [para. 21]. Leading insurers like China Taiping and China Life recorded notable uptake in participating policy sales [para. 22][para. 23].

The shift toward such products brings both opportunities and risks: it helps insurers stabilize liability costs and reporting under new accounting standards but intensifies asset-liability management challenges in a low-rate, “asset shortage” environment [para. 26][para. 27].

Ultimately, greater transparency, ongoing regulatory reforms (e.g., mandatory dividend realization disclosures from 2023), and enhanced product and investor education are seen as key to facilitating meaningful transition and growth, as evidenced by higher floating-return insurance shares in markets like Hong Kong (77.7% of new business in 2023) compared to China (21%) [para. 42][para. 44]. Industry voices stress that sustainable transformation must be underpinned by robust asset management and full information disclosure—enabling participating insurance to deliver on its promise as a true variable-return product [para. 38][para. 41].