These ten words outline the transformation and evolution of the insurance industry in 2023

Transitions often occur when the old road is about to reach a "dead end". 2023 for the insurance industry has been a year of change.

In the year when the transformation of life insurance has begun to see the light of day but still needs to be deepened, the insurance industry has ushered in the challenges brought about by the implementation of new accounting standards and the second phase of the "C-ROSS II generation". At the same time, in the complex external environment, if the extensive development continues, it may bring the risk of interest rate loss and fee difference loss in the industry, so under the strict control of supervision, the scheduled interest rate of life insurance will be lowered, and words such as "integration of newspaper and bank" will stir the nerves of the insurance industry this year.

Yicai has selected ten "keywords" from the events of the insurance industry throughout the year, in order to outline 2023 when the insurance industry is mixed with passive changes under regulatory policies and active changes in the market environment. And these changes are undoubtedly for the industry to evolve better in the future.

Keyword 1: financial reports have changed dramatically

At the beginning of 2023, several major insurance companies listed in A and H officially ushered in two new accounting standards for financial instruments and insurance contracts.

In the eyes of the financial staff of listed insurers, these two new standards have led to a dramatic change in the accounting statements of insurance companies, with a significant decline in revenues and increased uncertainty and volatility in profits and net assets.

This year's quarterly report of a listed insurer, which debuted as a new accounting standard, shows this dramatic change. According to the statistics of the first financial reporter, the switch of the new insurance contract standard has caused the insurance service income of the five A-share listed insurance companies in the first quarter to drop by about 60% compared with the insurance business income under the old standard. In contrast, the new accounting standards amplified the impact of changes in the market price of investment assets, but the net profit attributable to the parent company increased by 68.29% year-on-year. However, it should be noted that if there is a decline in the capital market, the new accounting standards will also amplify the impact of market fluctuations on profits compared with the old standards, which is also reflected in the semi-annual and third quarterly reports of listed insurance companies this year.

However, a number of senior executives of listed insurers stressed that although the new accounting standards have changed the way insurers recognize revenue, the essence of their business has not changed. In addition to the obvious changes in financial reports, the changes in these indicators and accounting measures will undoubtedly bring great challenges to the financial, actuarial and operational aspects of insurance companies in invisible places.

The two listed insurers have already switched to accounting standards, and other insurers will face the new accounting standards, and the challenges and huge workload they face are already beginning.

Keyword 2: Scheduled interest rate cuts

At the end of March, three symposiums in the life insurance industry put the industry's spread risk on the table.

In the era of low interest rates, life insurance investment is "under great pressure", and once the actual investment income of life insurance products is lower than the predetermined interest rate of the contract, the risk of interest rate loss will bring a heavy blow to the insurance company. These three symposiums convened more than 20 life insurance companies, and the reduction of the scheduled interest rate of life insurance products has become a common expectation of the industry.

In the following April, the predetermined interest rate was lowered, with the upper limit of the predetermined interest rate for ordinary life insurance being lowered from 3.5% to 3%, and the upper limit of the guaranteed interest rate for participating products and universal insurance products being lowered to 2.5% and 2% respectively, and the countdown to the removal of the original products from the shelves began.

The frenzy before the end of the product has since begun. According to data from the State Administration of Financial Regulation, the monthly premium income of life insurance has gradually increased since May, and peaked in June with a year-on-year increase of 115%. At that time, a number of insurance companies told the first financial reporter that the company's 3.5% predetermined interest rate increased whole life products by 80% or even doubled year-on-year.

In the end, the scheduled interest rate of life insurance was switched at the end of July, and traditional life insurance products officially entered the era of 3.0% predetermined interest rate, and the premium growth rate also stepped on the brakes. However, a number of people in the insurance industry said that life insurance products with a predetermined interest rate of 3.0% are still competitive in the market compared to the declining bank deposit rates. With the recent reduction of bank deposit rates, the topic of discussion among insurers has become: how long can products with a predetermined interest rate of 3.0% be sold?

Keyword three: the integration of newspapers and banks

After the scheduled interest rate cut, the regulator's attention is back on the fee spread.

In August this year, the "Notice on Regulating Insurance Products of Bank Agency Channels" brought the term "integration of newspapers and banks", which has been implemented in the auto insurance market for many years, into the field of life insurance, and the bancassurance channel became the first channel to be regulated.

The so-called "integration of newspapers and banks" refers to the commission fees that each company should pay to the channel according to the actual expenses, and the actual expenses such as commissions should be consistent with the filing materials. The reason why the bancassurance channel has become the first target is because the degree of high fees has been out of control. The high handling fees and hidden "small accounts" in the agreement may expose the life insurance company to the risk of cost differentials (the total amount of actual operating expenses incurred during the year in the premium structure exceeds the total amount of additional insurance premiums for the year's revenue).

The "integration of newspapers and banks" in the bancassurance channel has once again brought shocks to insurance companies and banks. Due to the need to re-sign commission agreements, some companies' bancassurance products experienced temporary removal from the shelves from the end of September to October.

Although there have been some fluctuations in the short term, the decline in expenses is real, which will also force insurance companies to reshape the core competitiveness of the channel. According to the preliminary estimate of the State Administration of Financial Regulation, the commission rate of the bancassurance channel has decreased by about 30% compared with the previous average. In the next step, the "integration of newspapers and banks" of individual agency channels and brokerage agency channels will also be launched, and it is worth looking forward to what changes will occur in the channel.

Keyword 4: The value of new business returns to positive growth

In the first two years, when it was realized that the crowd tactics were unsustainable, the transformation of life insurance has become a constant theme in the industry for nearly two years.

After the "darkest moments" of the previous two years, the life insurance transformation seems to have begun to show initial results this year, and a clear sign is that the value of new business has shifted to positive growth across the board this year.

According to the first financial statistics, unlike the year-on-year decline in the value of new business last year, the value of new business of the five major A-share listed insurance companies in the first half of this year totaled 70.504 billion yuan, an increase of 31.29% year-on-year. At the same time, the quality indicators such as per capita production capacity and agent income of various listed insurance companies have improved to varying degrees.

At the end of the first half of the year, the number of agents of the five major A-share listed insurance companies was about 1.51 million, down from 1.69 million at the end of 2022. Some executives of listed insurance companies said that the deepening transformation of the team is still continuing, and it is expected that the scale of industry agents will continue to decline in the coming period. With the gradual implementation of the grading system for agents and the products sold, it will also add weight to the high-quality transformation of the agent channel in the future.

Keyword five: long-term capital into the market

In order to activate the capital market and boost investor confidence, accelerating the entry of long-term funds, including insurance funds, into the market is an important aspect.

In August this year, the person in charge of the China Securities Regulatory Commission issued a series of policy directions for the reform of the investment side of the capital market. Among the series of measures mentioned, the insurance funds include: promoting the establishment and improvement of a long-term assessment mechanism for equity investment such as insurance funds, promoting research and optimizing the accounting treatment of equity investment in insurance funds, promoting the implementation of long-term stock investment pilot projects for insurance funds, and gradually expanding the scope and scale of the pilot projects.

Since then, relevant promotion policies have been implemented one after another. In September, the Notice on Optimizing the Regulatory Standards for the Solvency of Insurance Companies was issued, which lowered the risk factor for insurance companies to invest in equity assets such as constituent stocks of the CSI 300 Index and ordinary stocks listed on the Science and Technology Innovation Board. The "Notice on Guiding Long-term and Steady Investment of Insurance Funds and Strengthening the Long-term Assessment of State-owned Commercial Insurance Companies" issued in October clarified that the assessment method of return on net assets (ROE) of state-owned commercial insurance companies has been adjusted from "current year index" to "3-year cycle index + current year index".

Recently, the news that Chinese Life and Xinhua Life each invested 25 billion yuan to jointly launch the establishment of a private securities fund to invest in the stocks of high-quality listed companies has attracted widespread attention in the market, and this move is also considered to be a positive signal to the market released by insurance funds in response to the call of supervision to encourage long-term funds to enter the market.

Keyword 6: Insurance companies to replenish blood

The second phase of China's second-generation solvency regulatory system construction plan (commonly known as "solvency second-generation"), which was implemented last year, began to "show its prestige" this year.

Under the second phase of the "C-ROSS II", the regulatory recognition of the core capital of insurance companies has become stricter, and the solvency of insurance companies has declined significantly. According to data from the State Administration of Financial Regulation, as of the end of the third quarter of this year, the core solvency adequacy ratio of insurance companies fell sharply to 126.0% from 219.7% at the end of 2021, and the comprehensive solvency adequacy ratio fell sharply to 194.0% from 232.1% at the end of 2021.

Solvency is related to the premiums and investment of insurance companies, so "blood replenishment" has become a mandatory action for many insurance companies this year.

According to media statistics, since the beginning of this year, about 20 insurance companies have been approved to issue bonds, and the entire industry plans to issue bonds with an amount of more than 100 billion yuan, which is a significant increase from less than 50 billion yuan in 2022. If you count the capital increase, the urgency of insurance companies to replenish blood can be seen.

It is worth mentioning that last year's perpetual bonds, which opened the floodgates to insurance companies, have become a popular choice for insurance companies to "replenish blood" in the second half of this year, and a number of insurance companies have been approved to issue billion-level or ten-billion-level perpetual bonds since September. Guotai Junan said that the issuance of perpetual bonds can supplement core Tier 2 capital and improve the core solvency adequacy ratio. At present, for companies with tight core solvency adequacy ratios, especially life insurance companies, they will focus on the issuance of open-ended capital bonds.

Keyword seven: the first year of the implementation of personal pensions

In November last year, the personal pension system was launched as the top-level design of the third pillar of the pension, and this year is the first full year it has gone through.

Judging from the performance of the first year of the launch of the personal pension system, more account openings and less contributions have become an unavoidable evaluation. According to the data of the Ministry of Human Resources and Social Security, as of the end of the first quarter of this year, 30.38 million people across the country have opened personal pension accounts, but only more than 9 million of them have completed the deposit of funds, with a total storage of 18.2 billion yuan, and the per capita savings are only about 2,022 yuan, and the upper limit of 12,000 yuan per year for personal pensions is very different.

Industry insiders said that the reasons for the first year of personal pension is less than expected involve many factors such as policy, product, investment performance, etc., but from the number of participants in the proportion of the number of people who can enjoy individual income tax incentives, in fact, the performance of personal pension in the first year is not bad, and the market needs to look at the development of the personal pension system with a longer-term vision. In the future, market participants should make further progress in product differentiation and service convenience, increase the per capita savings, and promote the "third pillar" personal pension to play a real pillar role faster.

From the perspective of various financial institutions participating in personal pensions, as of the end of November, among the 745 various types of personal pension products, only 99 insurance products accounted for a relatively small proportion of them; People in the insurance industry believe that insurance companies have unique advantages in pension products + services, and they need to further strengthen their advantages in the future to increase their attractiveness to the public.

Keyword 8: Accident insurance enterprise risk is clear

In July 2020, the former China Banking and Insurance Regulatory Commission (CBIRC) took over four insurance companies, including China Life Insurance, Tianan Life Insurance, Tianan Property Insurance, and Yi'an Property Insurance, for a period of one year. In July 2021, the former China Banking and Insurance Regulatory Commission (CBIRC) announced an extension of the receivership period for one year.

Since 2023, the risk management of these four insurance companies has also accelerated, and their respective solutions have gradually become clear.

China Life Insurance and Tianan Life Insurance have ushered in their own undertakers Ruizhong Life Insurance and Zhonghui Life Insurance respectively this year. 100% of the equity of Yi'an Property Insurance was also acquired by BYD this year, and then officially changed its name to Shenzhen BYD Property Insurance Co., Ltd.

In addition to the above three insurance companies, Tianan Property Insurance has not officially announced the risk disposal results. However, it was previously reported in the market that Shenergy Property Insurance, which was approved for construction in September this year, may become an interested party to undertake Tianan Property Insurance.

Keyword 9: The "second comprehensive reform" of auto insurance has landed

On January 12 this year, the former China Banking and Insurance Regulatory Commission (CBIRC) issued the Notice on Further Expanding the Floating Range of Autonomous Pricing Coefficients for Commercial Auto Insurance, expanding the floating range of independent pricing coefficients for commercial auto insurance from the previous [0.65~1.35] to [0.5~1.5], further releasing the pricing autonomy of property insurance companies.

Industry insiders believe that this document, known as the second comprehensive reform of auto insurance in the industry, will give more pricing power to insurance companies, and at the same time guide car owners to form good driving Xi, and high-quality car owners may enjoy more favorable car insurance prices. According to media statistics, from the quarter-on-quarter trend of the average car premium in the third quarter, the average car premium of nearly 60% of insurance companies decreased compared with the second quarter.

However, for property and casualty insurance companies, while implementing the comprehensive reform, the underwriting profitability pressure brought by the new energy vehicle insurance business to insurance companies should not be underestimated, and major insurance companies need to adopt different business strategies according to the completely different risk structure of new energy vehicle insurance and fuel vehicles.

Keyword 10: AIGC applications are repeated

2023 is considered the first year of AIGC. The insurance industry's enthusiasm for AIGC and large models is also unprecedentedly high, and the application boundaries of these cutting-edge technologies in the insurance industry are constantly being broken.

AIGC middle platform, large model open platform, "digital employee" ...... This year, a number of insurance companies have released their own application explorations in AIGC and large models. In the eyes of industry insiders, with the mutual blessing of AIGC and large models, the insurance industry is entering a new stage of all-round empowerment brought by technology. However, on the whole, the current exploration of AIGC in the insurance industry is only in its infancy, and in the future, AIGC will become "another step forward in the new insurance infrastructure" with its strong content generation efficiency and more humanized understanding and expression capabilities.