Summary of Key Points
Insurance companies listed on the A-share market saw a substantial increase in net profit of 78% in the first half of the year, with overall performance significantly improving from the pressure experienced in the first quarter. The second quarter contributed nearly 80% of the total profit, with investment returns being the main driving force. However, there was a clear divergence in growth rates among the companies (ranging from 10% to over 200%), due to differences in investment strategies and asset allocation. Additionally, mid-year dividends generally increased, and there is a consensus within the industry to increase the allocation of equity assets. The focus for the future is on investing in dividend stocks and technology stocks.
1. A Complete Turnaround in Overall Performance: The Second Quarter Becomes the “Profit Driver”
In the first quarter, insurance companies were facing difficulties, with a year-on-year decrease in net profit of 16.98%. However, the second quarter saw a dramatic turnaround, with companies earning 247.5 billion yuan in a single quarter, accounting for 78% of the total profit for the first half of the year. The combined net profit for the first half was 317.3 billion yuan, with an average daily profit of 1.75 billion yuan, a year-on-year increase of 78%. The market responded positively, with the insurance sector rising by 2.62% on September 1, and China Life Insurance even increasing by 6.17%.
Why was the turnaround so sharp? The key lies in the strength of investments: The capital market improved in the second quarter, and the equity assets such as stocks and funds purchased by insurance companies generated profits, significantly boosting their overall earnings.
2. Performance Divergence: Some Doubled Their Profits, While Others Only Increased by 10% – What’s the Difference?
All five major insurance companies saw an increase in net profit, but the growth rates varied greatly:
- China Life Insurance’s profit increased by 228% (more than doubling).
- New China Life Insurance’s profit increased by 54%.
- Ping An Insurance and China Life Insurance’s profits increased by over 30%.
- Taibao Insurance’s profit increased by only 10.4%.
The differences mainly stem from two factors:
1. Different Investment Strategies:
- Some insurance companies prefer short-term trading: For example, China Life Insurance and New China Life Insurance focus on buying and selling stocks to profit from price fluctuations, taking advantage of the rise in growth stocks in the second quarter (such as those related to new productivity).
- Others prefer long-term holding: For example, Ping An Insurance prefers to buy high-dividend “stable stocks” (such as banks and power companies), which have lower volatility but less substantial short-term returns. Taibao Insurance also focuses on dividend stocks, but the dividend index fell by 8.75% in the first half, affecting its profits significantly.
2. Different Asset Allocation Methods:
Insurance companies use two methods to record the value of their stock investments:
- FVTPL (Short-term Accounts): Profits and losses are recognized in the current period. Accounts using this method, such as China Life Insurance’s (accounting for 8.1%), experience higher profits when the market rises.
- FVOCI (Long-term Accounts): Profits and losses are not recognized in the current period but only when the assets are sold. Accounts using this method, such as Ping An Insurance’s (accounting for 65.76%), have lower profit volatility but slower short-term growth.
For instance, China Life Insurance’s FVTPL accounts saw a 130-fold increase in earnings, doubling its net profit. In contrast, Taibao Insurance’s profit growth was slower due to the decline in dividend stocks and the significant presence of dividend stocks in its short-term accounts.
3. More Generous Dividends: Ping An Is the Most Generous, and Taibao Is Offering Mid-Year Dividends for the First Time
This year, insurance companies are being more generous with their shareholders:
- The dividends of China Life Insurance and China Life Insurance increased by 50% and 46%, respectively.
- Ping An Insurance has the highest dividend rate (over 20%, meaning for every 100 yuan in profit, 20 yuan is distributed as a dividend).
- Taibao Insurance is offering mid-year dividends for the first time, and now all five insurance companies are distributing mid-year dividends.
In simple terms, shareholders are receiving larger and earlier dividends.
4. Increased Stock Holdings: The Future Focus on “Stable” and “New” Assets
Regardless of performance differences, insurance companies have reached a consensus to increase their stock holdings: Core equity assets (stocks and funds) increased by 13.8% in the first half, accounting for 18.68% of total investments, with New China Life Insurance increasing this ratio to 25.5%.
What will be the main areas of investment in the future?
- Dividend Stocks (Stable): In an environment of low interest rates, the returns from fixed-income investments (such as bonds) are declining. Dividend stocks provide stable dividends and meet regulatory requirements for “net investment return coverage” (ensuring sufficient funds for premium payments and dividends).
- Technology Stocks (New): Areas related to new productivity (such as artificial intelligence and renewable energy) are seen as potential sources of excess returns. For example, China Life Insurance has invested 540 billion yuan in these sectors, with an annual growth rate of 30%.
In summary, insurance companies will continue to increase their stock holdings in the second half of the year, aiming to earn stable profits from dividend stocks and seek higher returns from technology stocks.
The turnaround in insurance companies’ performance in the first half is a result of successful investments, but different strategies have led to varying outcomes. In the future, they will be more proactive in buying stocks, focusing on both “stable” and “new” assets, which will influence the performance of the insurance sector. For the general public, this means that insurance companies have made profits in the capital market, with some taking greater risks for higher returns and others seeking more stable investments. All companies plan to continue exploring opportunities in the stock market.