Interview with Re Asset Li Wei: Based on the main business of reinsurance, we are looking for low-cost debt sources and cost-effective allocation opportunities

21st Century Business Herald reporters Li Zhihong, Zheng Jiayi, And Sun Shihui reported from Beijing

Insurance funds have the advantages of long term, large volume and stable source of funds, and by the end of June 2022, the balance of insurance funds used is nearly 25 trillion yuan, which is gradually becoming an important institutional force to promote the development of the capital market and maintain the stability of the capital market.

Reinsurance, as the "insurance of insurance", is not only a special form of insurance, but also has the attributes of insurance funds; At the same time, based on the basic attributes of the business itself, it has distinct characteristics in terms of funding sources, capital costs and risk appetite.

A few days ago, Li Wei, vice chairman, secretary of the party committee and general manager of China Re Asset Management Co., Ltd., said in an exclusive interview with the 21st Century Business Herald reporter that in the face of new situations, new changes and new requirements, the insurance industry is experiencing rapid development from many years to a stage of deep adjustment; The reinsurance industry has undergone profound changes and is transforming from a provider of insurance underwriting capabilities to a platform connecting the insurance industry with the real economy, to a leader in risk management products, services and support innovation.

Li Wei said that from a long-term perspective, in the process of China's economic structural upgrading and innovative development, with an ecosystem of continuous innovation, the endogenous value creation logic of core assets will be further established, and issues such as health, medical care, pension and environment need long-term attention.

On the asset side, China Re Assets will continue to adhere to the "two-wheel drive and two-way force" between the investment side and the product side, focus on key regions, key areas, key industries and key enterprises, provide diversified investment tools and business products for small and medium-sized enterprises, green development, scientific and technological innovation, energy supply assurance, water conservancy infrastructure, etc., and strive to promote the improvement of the effectiveness of the real economy.

Li Wei stressed that reinsurance has multiple functions of investment and financing, risk management and social management, which can better empower industrial development, and China Re Assets will further coordinate with the negative advantages of China Re Group to explore and build a new format of serving the real economy with the characteristics of reinsurance asset management companies with "insurance, reinsurance + assets", expand service areas, and provide diversified funding channels for major strategies, scientific and technological self-reliance, industrial chain supply chain modernization, green and low-carbon development, and provide diversified funding channels for the healthy development of the real economy.

Create stable and sustainable income for the main reinsurance business

21st Century: What are the uniqueities of reinsurance in terms of investment?

Li Wei: Different capital characteristics and characteristics have formed a differentiated business model and investment style. The unique liability characteristics of "reinsurance" put forward higher requirements for the investment ability of China Re assets, and also accumulated a unique ability advantage.

As a channel for insurance institutions to resolve risks in a wider range, reinsurance must be able to alleviate the impact of huge risks on the insurance industry and become a "stabilizer" to protect the development of the real economy, so it is necessary for the capital portfolio of reinsurance to have sufficient risk resilience.

The "three-phase superposition" of the macroeconomic cycle, the insurance industry cycle and the financial market cycle, and the "double constraint" of regulatory policies such as international rating and domestic "second generation of compensation" have put forward higher requirements for reinsurance fund investment management and risk control.

Looking back on the process of re-asset investment management, in the early years, we also spent high "tuition fees" to accumulate lessons, but it also deepened the company's understanding of the macro cycle, the understanding of the capital market, especially the grasp of the law of reinsurance liabilities.

Compared with direct insurance, reinsurance funds, as "second-hand funds", have relatively higher costs, a more diversified term structure of funds, and more obvious pro-cyclical characteristics. Compared with mature overseas insurance institutions, domestic institutions generally rely on investment income as the main source of profit. How to cross the cycle and create stable and sustainable benefits for the main reinsurance business is the core task facing China Re Assets in recent years.

21st Century: What explorations have Been Made in Investment by China Re Assets?

Li Wei: After nearly ten years of exploration and development, the company has gradually established and improved a complete set of investment systems from personnel team, management system (including investment, risk control, compliance, law, accounting, valuation, etc.) to information system construction, forming a close multi-dimensional coordination mechanism from research to investment, from first-level to second-level, from equity to fixed income, smooth operation of business processes and professional and efficient decision-making system.

After continuous accumulation and iteration, a closed-loop management model from asset allocation, strategy management, variety investment and risk management and control has gradually been formed. In terms of asset allocation, adhere to the cross-cycle long-term value investment thinking, cross-asset, multi-strategy combination dynamic management thinking, rationally carry out dynamic adjustment and rebalancing of asset allocation, and continuously increase the beta income of asset allocation.

Among them, fixed income investment always adheres to the combination of long cycle and short cycle, and continues to play the role of "ballast stone" through steady allocation; Open equity investment adheres to the concept of value investment, flexibly grasps structural opportunities, and implements effective strategies; Alternative Investment adheres to the investment strategy of "fund + direct investment" with the characteristics of China Re, with an IRR of more than 20%, and the market influence remains active.

During the "13th Five-Year Plan" period, the average book yield of the entrusted funds invested by China Re Assets was 5.42%, and the average comprehensive rate of return was 5.70%, exceeding the average level of the same industry for consecutive years, contributing a stable cash flow of investment income to the Group's insurance main business. In the first half of 2022, major asset classes outperformed the market benchmark index.

Look for low-cost sources of debt and cost-effective allocation opportunities

"21st Century": What is the layout of China Re Assets in internationalization?

Li Wei: The reinsurance business has a natural international nature, and the overseas institutions of China Re Group have expanded to 11 countries and regions, and the premium income of international business is nearly 20%.

In the process of participating in the global business expansion of the main business of service reinsurance, China Re Asset Management has also become the first insurance asset management institution in the industry to participate in QDII investment, the industry's first overseas alternative investment, and the first batch of Hong Kong Stock Connect, bringing the company the leading advantage and sustained growth opportunities for asset management internationalization.

In order to better play the synergistic linkage advantages of "two markets and two resources" and continuously expand the boundaries of asset allocation, China Re Asset (Hong Kong) was established in 2015. In April 2019, China Re Group successfully realized the acquisition of 100% of the equity of British Bridge. China Re Assets (Hong Kong) began to steadily undertake the entrusted management of the US dollar assets of lloyd's Bridge Group, marking the in-depth integration of China Re Group's wholly-owned acquisition of Bridge Company from insurance business to asset management, and thus achieving full coverage of the main asset management services of all overseas institutions of China Re Group.

After seven years of development, China Re Assets (Hong Kong) has initially possessed the investment management capabilities of "multi-asset, multi-market, multi-currency and multi-account", and the investment scope has expanded from the two types of secondary equity of Hong Kong stocks and US stocks in the early days to five major categories of fixed income, long-term equity investment, secondary equity, alternative investment and derivatives, with a management scale of nearly HK$60 billion, accounting for nearly 20% of the Group's asset management scale.

21st Century: What lessons have been gained from it?

Li Wei: Judging from the investment management experience of overseas insurance companies, actively expanding the direction of international allocation in the process of the downward trend of interest rate centers is a very good means of diversifying risks and improving returns. With the help of the Group's dual platform for domestic and foreign insurance and asset management, China Re Asset Management will grasp the macro cycle and market phased opportunities through cross-market linkage, find low-cost debt sources and cost-effective allocation opportunities, and provide strong support for the Group's development strategy.

Third-party businesses start from scratch, from small to large

21st Century: What are the new development plans of China Re Assets?

Li Wei: The "14th Five-Year Plan" further clarifies the investment ability and management experience formed in the process of serving the main business of reinsurance into wealth-oriented management capabilities and product creation capabilities; Expand third-party business development and help enhance the Group's overall value creation capabilities.

Since the second half of 2021, China Re Assets has promoted the layout of portfolio asset management product lines, optimized the large-class asset strategy and multi-asset strategy with the company's advantages and characteristics, improved the traditional fixed income and equity strategy, and set up special products such as fixed income +, Hong Kong stocks and FOF, and the product supply system has become increasingly complete.

For example, after the establishment of Rongtong Property & Casualty Insurance, it chose Zhong re Assets as the fund trustee, and the customer base including the wealth management subsidiaries of major banks expanded rapidly, and the business layout was in line with the development pattern of wealth management.

By the first half of 2022, the third-party business of China Re Assets has grown from scratch and from small to large, with a scale of more than 100 billion yuan, accounting for 20% of the group's asset management balance, and the scale growth rate ranks third among the same institutions.

21st Century: How to view the changes and development of the wealth management market?

Li Wei: It should be noted that the wealth management market is undergoing profound changes, with new layouts, new concepts, new tracks, and new battlefields emerging in an endless stream, and multiple formats coexisting on the asset side, product side, channel side, service side and operation side.

The demand for wealth management and pensions has emerged with huge growth potential, and head insurance groups and some foreign insurance companies have formed their own distinctive business models around these needs. The investment income objectives, risk appetite and allocation structure of such funds have strong similar attributes to insurance funds and reinsurance fund management, and value preservation is the foundation, which is more than "long-distance running".

In the future, China Re Assets will be based on the "stable" style and the ability to "advance" to meet the personalized and diversified investment needs of investors at different levels and with different needs, and realize the preservation and appreciation of funds.

Benchmarking domestic and foreign comprehensive financial groups, excellent asset management business can not only enhance the overall valuation of the group, but also have a more stable valuation level, which can contribute to the stable value growth of the group company. China Re Asset Management will accelerate the professional layout of "two-wheel drive and coordinated development" to serve the group's system funds and third-party asset management, enhance the overall value of the group, and serve the high-quality development of the group.

(Manuscript Coordinator: Ma Chunyuan)

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