CFIC Introduction
The asset allocation of insurance companies has gone through a thought-provoking 2023 - the average net investment return and average total investment return of the five major A-share insurance companies have declined. Against this backdrop, insurers continue to optimize their "dumbbell" allocation strategies to cope with the challenges brought about by changes in the market environment.
Original title: The return on investment has generally declined, and insurance companies continue to optimize the "dumbbell" allocation strategy
Market interest rates continue to fall, capital market volatility intensifies, and the supply of desirable assets is insufficient...... The asset allocation of insurance companies has gone through a thought-provoking 2023 - the average net investment return and average total investment return of the five major A-share insurance companies have declined. Against this backdrop, insurers continue to optimize their "dumbbell" allocation strategies to cope with the challenges brought about by changes in the market environment. In the view of industry insiders, the general trend of interest rate decline in the future remains unchanged, and insurance companies may optimize the "dumbbell" allocation strategy or focus on two aspects: on the one hand, increase the allocation of long-term bonds, extend the duration of assets, and optimize the fixed-yield asset structure to improve income flexibility, and on the other hand, further enhance the ability of diversified and global allocation to cope with the downward risk of interest rates in the single market.
Investment yields are generally under pressure
According to the 2023 annual reports of the five major A-share insurance companies, a reporter from Shanghai Securities News found that the average net investment return and average total investment return of the five insurance companies both declined, down 0.57 percentage points and 1.19 percentage points respectively.
From the perspective of individual insurance companies, in terms of net investment returns, Ping An of China decreased by 0.5 percentage points year-on-year, Chinese Life decreased by 0.23 percentage points year-on-year, Chinese Insurance decreased by 0.6 percentage points year-on-year, China Pacific Insurance decreased by 0.3 percentage points, and Xinhua Insurance decreased by 1.2 percentage points (the investment income data in 2022 was not restated according to the new financial instrument standards); in terms of total investment return, only Ping An of China increased by 0.6 percentage points year-on-year, and the other four all declined, Chinese Life decreased by 1.26 percentage points year-on-year, Chinese Insurance decreased by 1.3 percentage points year-on-year, China Pacific Insurance decreased by 1.5 percentage points, and Xinhua Insurance decreased by 2.5 percentage points.
The non-bank financial research team of China Merchants Securities believes that the low interest rate level and the scarcity of high-quality targets have led to the continued pressure on the new and reallocation of fixed income assets of insurance companies, and the net investment return has decreased year-on-year.
Increase the allocation of fixed income assets
In fact, the overall investment yield of the insurance industry is under pressure. According to data from the State Administration of Financial Supervision and Administration, as of the end of 2023, the annualized financial return of the insurance industry was about 2.23%, a decrease of 1.53 percentage points from the end of 2022.
The general decline in investment yields of insurance companies is mainly due to the "asset shortage" and the decline in interest rates.
The deputy general manager of a foreign-funded insurance asset management institution in Shanghai told reporters that the current industry is still generally concerned about the problem of "asset shortage", mainly because the supply of desirable assets in the market is insufficient, and it is difficult for institutions to find assets that match their liabilities.
In the face of the uncertainty of the market environment, the consensus in the industry is: good defense can be better "offensive". In 2023, listed insurance companies will continue to increase the proportion of fixed income asset allocation, with CPIC bond investment increasing by 8.7 percentage points, Ping An bond investment by 3.5 percentage points, Chinese life bond investment by 3.05 percentage points, and Chinese insurance bonds and government bonds, financial bonds and corporate bonds by 2.2 percentage points.
"On the whole, listed insurance companies have adhered to the two-dimensional balanced allocation structure of long-term interest rate bonds and risk assets, stable equity assets and growth equity assets. "The non-bank financial research team of China Merchants Securities believes that on the one hand, listed insurance companies continue to strengthen the allocation of long-term interest rate bonds to extend the duration of fixed income assets and stabilize the bottom position, and on the other hand, they carry out flexible and active management of equity assets, promote balanced allocation and structural optimization, so as to improve long-term investment returns, and the overall asset quality is excellent.
In the view of industry insiders, in recent years, most insurance companies have adopted a "dumbbell" strategic asset allocation strategy: on one end is fixed income assets, mainly long-term interest rate bonds, and on the other end is risk assets, such as equity, private equity, real estate, alternative assets, etc. However, in the current market environment, the effectiveness of traditional "dumbbell" allocation strategies is decreasing, and in order to obtain higher and more stable long-term returns, insurers should continuously optimize the "dumbbell" allocation strategy according to market changes.
Enhance the ability of diversified and global allocation
At present, how to deal with the "asset shortage" and the decline in interest rates is becoming the focus of the industry. According to the reporter's understanding, the key to the asset-liability matching of insurance companies is to control the duration gap, the closer the duration of assets and liabilities, the more calm the insurance companies will respond to changes in the market environment; if the duration gap is negative, when the market interest rate falls, the net assets will decrease, and the larger the duration gap, the faster the reduction.
From past experience, large insurance companies have experience in asset management through cycles, and duration gap control is generally reasonable. In an environment of declining market interest rates, almost all of the hardest hit are small and medium-sized insurers with aggressive operations and large duration gaps, because their solvency has been "eroded".
Drawing on international experience, international insurance institutions generally respond to the downside risk of interest rates in the single market through global asset allocation. Therefore, from the perspective of the industry, insurance companies need to further improve their diversified and global allocation capabilities to optimize their "dumbbell" allocation strategies.
Kong Xiang, an analyst in the financial team of Guosen Securities Economic Research Institute, predicts that the asset-side allocation opportunities of insurance companies in 2024 will mainly focus on three aspects: first, further explore high-dividend investment opportunities including OCI (other comprehensive income) equity and other assets, and superimpose relevant policy breakthroughs to open up the space for insurance capital allocation to a certain extent; 。
Source of this article: Shanghai Securities News
Author: He Kui
WeChat editor: Wang Qian
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