CITIC Securities: Expect the insurance sector adjustment to end; recommend actively seizing major opportunities

China International Capital Corporation’s research report states that the insurance sector has fallen 15% since the beginning of the year, mainly due to external factors; 1x PB is a reliable indicator for making allocations. The upward move in the fundamentals cycle has already been established for 2025, and since the first quarter of 2026 the trend has been strengthened, including further reduction in liability costs on the liability side, more options on the asset side, and strict regulation that discourages “internal competition” to promote concentration of market share. At the same time, we expect the relevant policies under the “15th Five-Year Plan” to be implemented, to drive coordinated development between medical insurance and commercial insurance, and to achieve a win-win outcome for patients, hospitals, doctors, innovative drugs, and insurance companies. We expect the insurance sector’s adjustment phase to be over, and to actively seize this major window of opportunity.

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Insurance｜We expect the insurance sector’s adjustment to be over; we recommend actively seizing the major window of opportunity

The insurance sector has fallen 15% since the beginning of the year, mainly due to external factors; 1x PB is a reliable indicator for making allocations. The upward move in the fundamentals cycle has already been established for 2025, and since the first quarter of 2026 the trend has been strengthened, including further reduction in liability costs on the liability side, more options on the asset side, and strict regulation that discourages “internal competition” to promote concentration of market share. At the same time, we expect the relevant policies under the “15th Five-Year Plan” to be implemented, to drive coordinated development between medical insurance and commercial insurance, and to achieve a win-win outcome for patients, hospitals, doctors, innovative drugs, and insurance companies. We expect the insurance sector’s adjustment phase to be over, and to actively seize this major window of opportunity.

▍ The insurance sector has fallen 15% since the beginning of the year, mainly due to external factors; 1x PB is a reliable indicator for making allocations.

Reasons for the decline in the insurance sector since the beginning of the year include: 1) the state-backed funds reducing their holdings, breaking expectations of an one-way bull market; 2) the U.S. AI narrative disrupting insurance intermediaries; 3) the Middle East war leading to expectations of global economic stagnation amid inflation; 4) insurance companies’ equity positions being at relatively high levels, so the 2026 Q1 reports will be affected by the stock market decline. As a result of the above factors, valuations have returned to historical lower percentiles. Measured by the A-share insurance index, over the past decade the overall PB range has been 1–3x, with a median of 1.75x. Currently, static PB is 1.26x; compared with the overall sector’s 10%–15% ROE range, valuations offer a relatively large margin of safety. Among weight stocks, China Ping An’s static PB is 1x, corresponding to ROE of 13%–15%. Historically, when allocating to China Ping An at below 1x PB, valuations have still been able to revert to above 1x PB; this is mainly because insurers have already fully priced assets and liabilities using fair value, and the net asset indicator is a reliable metric for identifying points of entry.

▍ The upward fundamentals cycle for 2025 has already been established, and since Q1 2026 the trend has been strengthened.

In 2025, the logic behind the insurance sector’s established upward cycle is: savings deposits shifting to insurance, insurance products moving from traditional insurance to participating policies, market share concentrating toward large and mid-sized insurers, interest rates forming a bottom and the bond yield curve becoming steeper, and on top of that insurers actively entering the market and sharing in the bull-market “feast.” Compared with 2025, since 2026 we believe the trend of long-cycle upward fundamentals has been further consolidated, including:

1) From the liability side, the industry landscape is becoming more concentrated, and liability costs continue to decline. With large price fluctuations across major asset classes and the breaking of one-way bull expectations for the stock market and gold, class fixed-income products dominated by participating policies have become the best choice for low-risk preference capital. Insurers further reduce liability costs; some companies have launched participating policies with guaranteed interest rates of 1.5% and 1.25%. At the same time, regulators are also guiding insurers to further lower demonstrated interest rates. Regulators have investigated fee expenses in the bank-insurance channel for various insurers and issued stricter regulatory documents, which implies that competition in the future will be fairer. Fee spending is expected to decrease further, market share will become more “top-heavy,” and in the long run we believe the market will move toward a competitive pattern dominated by around 3–5 leading companies.

2) From the investment side, adjustments in the stock market and bond market provide good opportunities for insurers’ asset allocation. Since the second half of 2025, the bond market has been in a downward trend. For 30-year government bonds, local government bonds, and ultra-long government bonds, after considering income tax on coupon interest, they have a relative advantage for allocation. Insurers are expected to obtain risk-free long-term duration spreads. As the stock market adjusts this year and the market has broken expectations of an one-way bull market, high-quality companies with stable profitability and stable dividend growth have regained appeal. Overall, insurance capital is shifting from FVTPL equities to FVOCI. Although stock market volatility will to some extent affect insurers’ net profit in their 2026 Q1 reports, this is not the main factor determining insurers’ investment value. Buying and selling insurance stocks based on profit changes in a quarterly view has a lower chance of winning. By contrast, profit declines driven by short-term factors will bring good opportunities for long-term allocation.

3) Meanwhile, as strategic investors, participating in targeted placements (private issuances) of listed companies will be an important path for insurers to broaden long-term returns. In Q1 2026, the CSRC issued the “Decision on Amending <Opinions on the Application of the Securities and Futures Law No. 18>” (a draft for comments), expanding the types of strategic investors. It clarifies that institutional investors such as the National Social Security Fund, basic pension insurance funds, corporate (occupational) annuity funds, certain commercial insurance funds, public funds, bank wealth management products, and other institutional investors can serve as strategic investors, using patient capital as a strategic resource for listed companies’ strategy. Under the rules, this class of investors will be defined as capital investors, while other real-economy investors will be defined as industrial investors. At the same time, the CSRC also plans to clarify requirements for the minimum percentage of shares to be held. It will insist that strategic investors should hold a relatively large proportion of shares in listed companies, further clarifying that the subscription by strategic investors for the shares of a listed company shall in principle not be less than 5%, and they may participate in the governance of listed companies according to their shareholding ratio. This will significantly increase insurers’ enthusiasm to add equity investments. For accounting, it can be recognized using the equity method, and will not be affected by stock-price volatility. It will also actively promote business synergy between listed companies and insurers, such as in the areas of healthy aging, pensions, technology, and infrastructure, among others.

▍ The “15th Five-Year Plan” Outline highlights the position of commercial insurance. It is expected that relevant policy support will be provided for commercial medical insurance, long-term care insurance, personal pension, and more, and it may drive coordinated development between medical insurance and commercial insurance, promoting the building of insurer ecosystems.

The “15th Five-Year Plan” Outline proposes: to accelerate the development of a multi-level, multi-pillar pension insurance system, expand the coverage of enterprise annuities, improve policies for personal pensions, and vigorously develop commercial pension insurance. Improve a multi-level medical security system, refine cross-regional medical settlement, and fully leverage the supplementary protection role of commercial medical insurance. Encourage commercial insurance to expand mechanisms for developing innovative drugs and medical devices, and encourage commercial insurance to expand the scope of payment for innovative drugs. Roll out long-term care insurance and improve a unified assessment system for older people’s care needs. According to the “Opinions on Accelerating the Establishment of a Long-Term Care Insurance System,” published in March 2026, the goal is to have the long-term care insurance system basically established within about 3 years. The overall premium rate for long-term care insurance should be controlled at around 0.3% (0.15% each for employers and individuals), providing basic living care and reimbursement for medical nursing expenses for insured persons who have lost normal ability to function. This marks that long-term care insurance is officially moving from the localized pilot stage since 2016 into the stage of a nationwide basic system.

▍ Risk factors:

Large volatility in the stock market; long- and medium-term interest rates declining; growth in policy sales falling short of expectations.

▍ Investment strategy: We expect the insurance sector’s adjustment to be over. Actively seize the major window of opportunity for industry development, and pay even more attention to leading companies under the oligopoly trend.

The insurance sector has fallen 15% since the beginning of the year, mainly due to external factors; 1x PB is a reliable indicator for making allocations. The upward move in the fundamentals cycle for 2025 has already been established, and since the first quarter of 2026 the trend has been strengthened, including further reduction in liability costs on the liability side, more options on the asset side, and strict regulation in areas such as bank-insurance channels that discourages “internal competition” to promote concentration of market share. At the same time, we expect the relevant policies under the “15th Five-Year Plan” to be implemented, to drive coordinated development between medical insurance and commercial insurance, and to achieve a win-win outcome for patients, hospitals, doctors, innovative drugs, and insurance companies. We expect the insurance sector’s adjustment phase to be over; actively seize this major window of opportunity for industry development, and maintain a “better than the market” rating. We will focus on leading insurers in an environment where the market structure continues to concentrate further. We will also focus on companies that may benefit from policies for commercial health insurance.

（Source: Securities Times Network）