Summary of Key Points
This year, insurance stocks have experienced a significant decline. On the surface, the reasons include the loss of momentum from the "speculation around product suspensions and sales" on the liability side, as well as the impact of new policies in the banking-insurance sector on growth, coupled with large fluctuations in investment profits. However, the deeper underlying cause is a change in the industry landscape: insurance companies affiliated with banks and postal services (relying on bank channels) and joint-venture premium-quality insurers (specializing in dividend-paying products) have taken up most of the new business. Although leading listed insurance companies remain established, their growth has been hindered, which results in a market that is unwilling to assign them high valuations. In the future, the insurance sector is likely to see sideways fluctuations at the bottom, and we need to wait for the market trend to shift from technology growth to a more balanced or dividend-oriented style before a major upward movement can occur.
I. Direct Reasons for the Sharp Drop in Insurance Stocks: The Lack of Momentum from "Policy Grabbing" and Volatile Investment Returns
The two most direct reasons for the sharp decline in insurance stocks this year are both related to money:
- Liability Side (the part that collects premiums): There is no longer the short-term surge from "speculation around product suspensions and sales." In previous years, insurance companies would promote the suspension of products before the scheduled interest rate cuts (such as at mid-year) to encourage customers to buy quickly, leading to a sudden increase in premiums. However, this year interest rates have not only not decreased but have also risen slightly, so this incentive has disappeared, and premium growth has slowed down. Additionally, new policies in the banking-insurance sector have eliminated "off-the-books" practices (such as giving banks additional commissions), weakening their motivation to sell insurance and increasing short-term growth pressure.
- Investment Side (the part that manages funds): Insurance company profits rely heavily on investment returns. This year, the A-share market has been highly volatile; for example, China Life's profits decreased by 32% in the first quarter but then increased by more than 200% in the second half. Such erratic performance has scared investors—who wants to invest in assets with unstable returns?
II. Changes in the Industry: Insurance Companies Affiliated with Banks and Postal Services Take Up Most of the New Business
Leading insurance companies (such as China Life and Ping An) have not lost their position, but new business has been taken by two types of firms:
- Insurance Companies Affiliated with Banks and Postal Services: These companies benefit from bank branches to easily sell insurance products to depositors. For instance, China Post Life and ICBC Prudential have seen their premium revenue exceed 100 billion yuan in 2025, pushing them to seventh place in the industry, thanks to the extensive network of Postal Savings Bank of China and China Post. These companies have taken a large share of the new business from traditional banking-insurance channels, squeezing the market share of leading insurers.
- Joint-Venture Premium-Quality Insurers: Dividend-paying insurance products have been extremely popular this year, with year-on-year growth of 94% in the first half. A portion of these returns is fixed, and another portion is variable (insurance companies distribute at least 70% of their investment profits to customers). Joint-venture insurers (such as China Life Insurance (Sino-Italian) and China Life Insurance (Sino-British)) have a flexible governance structure and high dividend payout ratios (as their foreign shareholders come from regions with long-term low interest rates), making them the main players in this market. Their growth rate is much faster than that of leading companies; for example, China Life Insurance (Sino-Italian) saw a 55% increase in the first half of the year, capturing the business from mid-to-high-end depositors.
III. Leading Insurance Companies: Stable, but with Restricted Advantages
Leading insurance companies (such as China Life and Ping An) are not weak, but their new business growth has been hindered:
- Advantages: They have a solid foundation and high value—large numbers of agents (although they are streamlining their workforce, the remaining elite agents are more productive), a full range of products (from life insurance to health insurance), and services such as elderly care communities. They can also profit from investments in cutting-edge technologies (for example, China Life's investment in Changxin Technology resulted in a 20 billion yuan gain). Their market share is stable, with China Life holding 20% and Ping An holding 15%, making it difficult for others to overtake them.
- Shortcomings: They are slow to adapt to new trends. In the past, they relied on agents to sell traditional life insurance with fixed returns, which was easy to promote. However, with banking-insurance and dividend-paying products becoming mainstream, their transformation has been slow. Their low presence in banking-insurance business (for fear of affecting their value) and the fact that dividend-paying products are not their main focus have led to new business being taken by other companies.
IV. Why Valuations Are Low? The Market Is Unimpressed with the Current Industry Structure
The low valuations of insurance stocks reflect market dissatisfaction with the current industry landscape:
- Growth-Oriented Funds: These funds are dissatisfied with the slow growth rate of the insurance industry, as the liability side's growth has been in single digits for years, and the asset side is highly volatile.
- Value-Oriented Funds: These funds prefer a more concentrated industry structure, where leading companies can capture all new business. However, with new business being split between affiliated banks and postal services and joint-venture insurers, leading companies are not achieving this, so value-oriented funds are also unenthusiastic about investing in insurance stocks.
- Result: Valuations are suppressed. The PEV (Price-to-Economic Value) of listed insurance companies is below 1 (for example, Ping An's PEV is 0.55x), meaning the market value is lower than the actual company value, but investors are still reluctant to buy due to the unsatisfactory industry structure.
V. Future Trend: Sideways Fluctuations at the Bottom, Waiting for a Change in Market Trends
The future performance of the insurance sector depends on several factors:
- Short Term: There may be some recovery, but a significant increase is unlikely. Current low valuations and expected high profit growth (based on mid-year reports) could lead to a slight recovery in the second quarter. However, profit growth may slow down in the third quarter due to last year's high base, and the market's preference for technology stocks means insurance stocks have limited flexibility.
- Medium to Long Term: The sector's dividend yield of 3.6% makes it suitable as a "dividend bottom stock." A major upward movement in insurance stocks will only occur if the market shifts from a technology growth trend to a more balanced or dividend-oriented one.
- Key Factor: Whether leading insurance companies can transform their business models is crucial. If they can turn banking-insurance products into high-value offerings, improve dividend-paying products, and continuously enhance the quality of their agents, the industry's structural pressures will be alleviated, and valuations may rise.
Conclusion
The sharp decline in insurance stocks this year is the result of both apparent reasons and deeper underlying changes in the industry structure. Leading companies are stable, but their new business growth has been constrained. The industry is becoming more segmented, with clear distinctions between leading firms, banks and postal services, and joint-venture premium-quality insurers. In the future, the sector is likely to see sideways fluctuations at the bottom. For significant gains, we need to wait for a shift in market trends. Currently, it is a suitable time for conservative investors to build positions in insurance stocks.
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