Demonstration of interest rate cut to 3.5%: The life insurance industry "fights back against internal competition" with renewed efforts

◎ Reporter Han Songhui

On March 27, Shanghai Securities News reported exclusively through relevant channels that the personal insurance industry has reached a consensus on lowering the illustrative interest rate for participating (dividend) insurance, and plans to further reduce it to 3.5% in order to prevent sales misrepresentation and liability spread (loss) risks.

The 2025 annual reports recently released in a concentrated manner by listed insurance companies show that personal insurance companies generally stepped up their efforts in participating insurance in 2025. The participating insurance business share increased significantly, and they generally said they would iterate products and optimize product structure. However, the reporter learned from within the industry that, due to issues such as implicit “guaranteed redemption” and sales misrepresentation that occurred during the earlier development of participating insurance by some personal insurance companies, they have started to proactively reduce the share of participating insurance.

Lowering the illustrative interest rate

The illustrative interest rate is the interest rate level used by an insurance company when demonstrating future benefits during the sale of participating insurance products. An industry source told the reporter that, currently, the highest illustrative interest rate for participating insurance is 3.9%, and this time it is planned to be reduced to 3.5%.

“Because bond market interest rates have remained at a low level with fluctuations for a long time, and volatility in the equity market has increased, to match the current level of market investment returns and guide insurance consumers to form reasonable expectations, the illustrative interest rate indeed needs to be reduced further.” An industry source told the reporter.

If the illustrative interest rate is set too high, it can easily lead to sales misrepresentation and pressure from implicit “guaranteed redemption.”

Industry insiders say the illustrative interest rate is neither a guaranteed interest rate nor the actual interest rate level of an insurance product. But in actual implementation, some companies set the illustrative interest rate too high, giving consumers unreasonable expectations and creating pressure from implicit “guaranteed redemption,” thereby allowing the industry to accumulate the risk of interest spread losses.

To understand the true interest rate level, consumers should pay attention to the dividend realization rate. The so-called dividend realization rate (actual dividends / promised dividends) reflects an insurance company’s actual dividend level. The reporter learned from within the industry that among nearly 3,000 participating insurance products that disclosed their 2025 dividend realization rates, the differences are very large: the highest reaches 233%, while the lowest is as low as 12.5%.

The reporter learned that, within the industry, there has been consensus on prudently determining the dividend level, and they will no longer arbitrarily raise dividends to engage in “internal competition” within the industry. Instead, they will push to keep the dividend realization rate at a relatively stable level. This is beneficial both for reflecting insurers’ true investment levels and for guiding insurance consumers to form reasonable expectations, thereby reducing sales misrepresentation.

Transforming into a “low guaranteed + high floating” model

According to relevant statistical data from the China Insurance Industry Association, in 2025, participating insurance original premium income reached RMB 904.2 billion, up 18.06% year over year, making it the fastest-growing business in the life insurance industry.

The share of participating insurance in listed insurers has been rising rapidly. For example: China Life’s participating insurance as a share of first-year single premium via the individual insurance channel is nearly 60%, becoming an important support for new single premium; China Taiping Life’s 2025 participating-type insurance new business premium for first-year premium at the time of policy inception saw a significant year-over-year increase, and within its new business at policy inception, the share of participating insurance rose to 50.0%; Taiping Life’s participating insurance premiums across all channels as a share of premiums for long-term insurance are already close to 90%.

Management teams at multiple listed insurance companies have all said that, as participating insurance’s share increases, the sensitivity of the company’s new business value to interest-rate changes has been significantly reduced, and the results of the transformation have become apparent. In the future, the company will continue to enrich floating-yield type products such as participating insurance, promote product iteration and upgrades, and optimize the product structure.

However, due to pressures such as implicit “guaranteed redemption,” some companies have begun to proactively reduce their share of participating insurance business. The reporter learned from within the industry that during the course of business transformation, some insurance companies have created pressure from implicit “guaranteed redemption” due to reasons such as setting higher illustrative interest rates and having sales misrepresentation issues. Out of risk-prevention considerations, they have proactively reduced the share of participating insurance business.

A research report released recently by Chuangxin Securities said that participating insurance is expected to continue to occupy a mainstream position in the future, and may shift from a “high guaranteed + low floating” model to a “low guaranteed + high floating” model.

Industry insiders believe that the reduction in participating insurance’s illustrative interest rate this time is an active adjustment made by the life insurance industry based on risk prevention considerations. In the future, participating insurance is expected to better adapt to the low-interest-rate environment with even more favorable business models.

(Editor: Qian Xiaorui)

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