The market steadies again—revisit the “insurance funds dumping” theory: macro disturbances are the main cause, and incremental inflows are still expected this year.

21st Century Business Herald reporter Lin Hanyang and Yu Jixin

Recently, there has been a significant pullback in China’s A-share market. The Shanghai Composite Index has fallen below a key round-number level, and market sentiment once again turned sluggish. At the same time, a rumor is spreading rapidly in the investment community: “Small and mid-sized insurance companies are being forced to substantially cut their equity holdings due to the full rollout of the second-generation solvency requirement for payment capacity regulation, which then triggers a chain reaction of declines in the market.” Some viewpoints even regard this claim as the core catalyst for the current round of correction, sparking heated discussion within the industry.

However, based on interviews conducted by the reporters with senior executives from insurance institutions, chief analysts covering non-bank finance at securities firms, and university academics, multiple viewpoints indicate that this rumor does not hold up.

Those interviewed generally believe that there is some cutting of holdings among small and mid-sized insurers, but the scale is limited, and it is not the main cause of the market’s decline. Large insurers, overall, are showing stable performance or even a modest increase in holdings. The “insurance funds” characteristic as long-term capital has not fundamentally changed. While the new accounting standards and solvency regulation do affect investment behavior, they are more about guiding the industry toward long-term value investing, rather than intensifying “chasing up and selling out” or “buying high and panic-selling.”

Insufficient motivation for small and mid-sized insurers to cut holdings

To understand this controversy, it is necessary to first clarify the core concepts.

An insurance company’s payment capacity (solvency) refers to its ability to fulfill its compensation obligations to policyholders. It is typically measured by the core solvency adequacy ratio and the comprehensive solvency adequacy ratio.

Among them, the core solvency adequacy ratio is the ratio of core capital to minimum capital. It measures the adequacy condition of an insurance company’s high-quality capital. The comprehensive solvency adequacy ratio is the ratio of actual capital to minimum capital, which measures the overall capital adequacy condition of the insurance company.

Under the regulatory framework, equity-type assets (such as stocks) generally correspond to higher risk capital consumption. Therefore, when the market fluctuates or capital faces pressure, institutions may theoretically adjust their positions.

China’s solvency regulatory system for insurance companies has undergone an evolution from “paying for the first generation” to “paying for the second generation,” and then to “second-generation, phase two.”

The “second-generation, phase two” transition period released in December 2021 ended officially on December 31, 2025. After March 31, 2026, insurance companies complete their solvency reports for the first quarter of 2026—this is also the first strict validation checkpoint after “second-generation, phase two” becomes fully effective.

Therefore, some believe that at the end of the first quarter of 2026—right at the time when insurers are evaluated quarterly for solvency—small and mid-sized insurance companies were forced to dump stocks before quarter-end in order to beautify their reports and meet regulatory requirements. This passive de-risking and deleveraging then triggers a “chain reaction” deleveraging of leveraged funds, ultimately leading to a sharp market drop.

But multiple interviewees do not认可 this view.

A chief analyst covering non-bank finance at a securities firm told the reporter from 21st Century Business Herald that the “second-generation, phase two” and the future “phase three” impose higher requirements on insurers’ solvency adequacy ratios. This will inevitably affect insurers’ selection of equity investment targets. However, most insurers’ equity investment ratios are far below the limit. At present, there is no large-scale risk, nor is there any need for passive position cuts.

Xu Gaolin, an associate professor at the School of Insurance at University of International Business and Economics, laid out the relevant policy timeline for the reporter. At the end of 2024, the National Financial Regulatory Administration issued a notice extending the transition period for the rules (II), which had originally been scheduled to end that year, to the end of 2025. By the end of 2025, regulators also lowered the risk factors for the portion of stocks that insurance companies invest in, thereby reducing the risk capital consumption for equity-type assets.

“If small and mid-sized insurers cut holdings to meet solvency requirements, it should have been done in batches before the end of 2025, rather than cutting in the first quarter of 2026,” Xu Gaolin noted. “On the contrary, under the new policy at the end of 2025, the risk factors were lowered, so increasing holdings would be the logical action.”

According to information, the National Financial Regulatory Administration previously issued, at the end of 2025, the “Notice on Adjusting Risk Factors for Relevant Business of Insurance Companies,” which lowered the risk factors for the portion of stocks that insurance companies invest in, thereby reducing the risk capital consumption for insurers’ equity-type assets.

Ge Yuxiang, chief analyst covering non-bank finance at Zhongtai Securities, also pointed out in an interview with the reporter that this year insurers’ pressure mainly comes from the decline in the 750 assessment curve, which weighs on actual capital (the denominator in solvency). Currently, insurers’ equity holdings and scale are both at historically high levels. The recent market downturn indeed brings some pressure, but solvency is not the primary constraint.

The scale of position cuts cannot move the whole market

Even if some individual small and mid-sized insurance companies do cut their holdings, the impact is still viewed by the interviewed experts as a “local phenomenon,” making it difficult to form systematic selling pressure.

The latest data from the Financial Regulatory General Administration shows that, as of the end of 2025, the balance of insurance industry funds used for investment reached 3.85 trillion yuan, up 15.7% from the beginning of the year, the highest growth rate since 2021. Among them, the allocation size of core equity assets, including stocks plus securities investment funds, increased by 1.6 trillion yuan from the beginning of the year. The balance of stock investments reached 3.73 trillion yuan, accounting for nearly 10% of total investments.

Based on Xu Gaolin’s calculations, as of the end of 2025, top large and mid-sized insurers held about 3 trillion yuan. The entire stock positioning of the remaining small and mid-sized insurers was only around 730 billion yuan.

“Then to pick out the companies where there is truly a solvency problem that requires selling stocks, the proportion is extremely low.” He analyzed that even if small and mid-sized insurers collectively sold 10% to 20% of their holdings, it would amount to only around 385k yuan. Moreover, the daily average trading volume in China’s A-share market has long surpassed 2 trillion yuan. That scale is far below the amount of capital involved in normal day-to-day market fluctuations, making it unlikely to change the overall supply-and-demand pattern.

Therefore, the aforementioned chief analyst covering non-bank finance at the securities firm said that theoretically, it is not operationally feasible for small and mid-sized insurers to cut holdings simultaneously. Even in extreme scenarios, the impact on the market would still be limited.

As to why the market attributes the stock market decline to small and mid-sized insurers cutting holdings, Xu Gaolin analyzed that small and mid-sized insurers are numerous and their voices are mixed, making their individual actions easier to magnify and observe. In contrast, the large insurers’ behavior of increasing holdings is quiet and scattered within periodic reports. Market participants are more likely to notice selling actions by certain small and mid-sized institutions but overlook the trillion-yuan-plus buying data from top institutions, leading to a one-sided impression that insurers are selling. Yet in reality, buying far outweighs selling.

Xu Tianxu, chief investment officer of Sinmei Mutual Life Insurance, pointed out in an interview with the reporter that insurance companies are indeed an important investment force in the market overall, but they are not a decisive force. Their influence mainly appears at the margin in specific segments such as high-dividend stocks, and their impact on the entire market or other segments is limited. This is because insurance companies typically do not frequently rotate portfolios, their holding periods are relatively long, and they are unlikely to frequently chase market hotspots. They also generally do not use leverage to invest in the stock market.

Ge Yuxiang said: “We expect that small and mid-sized insurers’ total asset scale accounts for about 30% of the insurance funds. Currently, trading activity in the A-share market is still relatively high. And without considering the feasibility of collective position cuts, a single type of capital alone cannot change the market’s own operating规律.”

In addition, Ge Yuxiang noted that insurance funds need to seek balance among three financial objectives: the solvency adequacy ratio, investment return targets, and asset-liability matching. The “second-generation” introduces a countercyclical adjustment to the risk factor for stock investments (the feature coefficient K1 when risk factors are introduced), which to a certain extent reduces insurers’ impulse to “chase up and sell out.” There may be some room for operations around quarter-end, but the scale will not be large.

External macro shocks are the main factors behind the broad market decline

If small and mid-sized insurers are not the culprit for the sell-off, what is the real reason for this market correction?

Interviewees generally pointed to external macro factors.

Xu Tianxu said bluntly that the main reason for this stock market decline is not small and mid-sized insurance companies, but rather a disruption to the prior upward logic caused by an unexpected outbreak of war and internet giant earnings reports falling short of expectations, which then triggered a severe adjustment. The decline set off passive deleveraging and position cuts by leveraged funds, forming a negative feedback loop. Insurance companies are only one part of that chain. Some companies reduced holdings because the drop was too large, affecting net assets and solvency. But the main cause should not be blamed on insurance companies.

Ge Yuxiang said that currently, positions held by public funds, insurance funds, private funds, and retail investors are all not low. Recent market trading has been weighed down by expectations of sluggish trading and a lack of momentum, dragging the index’s trajectory. After the market breaks key round-number levels, various pools of capital face stopping-loss pressure to different degrees.

While the claim that “insurance funds cut holdings and thus caused the fall” is hard to substantiate, multiple experts interviewed also pointed out that the new accounting standards and solvency regulation have indeed profoundly changed insurers’ investment behavior, and in certain circumstances may even amplify market volatility.

Xu Tianxu explained the transmission mechanism in detail to the reporter.

He analyzed that under the new accounting standards, large insurance companies have stronger risk resistance and more tools. They can filter out market volatility through methods such as long-term equity investments and setting up private funds. Small companies have relatively fewer tools, and can only respond by placing high-dividend stocks into an OCI account and flexibly adjusting their positions.

“Large companies have strong solvency and can withstand market shocks; small companies lack that kind of resilience.” Therefore, Xu Tianxu said that under the new solvency regulatory framework, these factors will indirectly increase stock market volatility to some extent. Insurance companies’ long-term funds are, to a certain degree, forced to exhibit characteristics of short-term funds.

Although the new accounting standards objectively increase the pressure for volatility in insurers’ income statements, Xu Gaolin said that the new accounting standards—by design—are guiding insurers to avoid “chasing up and selling out,” and to shift toward long-term value investing.

“It becomes meaningless to chase price increases.” Xu Gaolin said that under the FVOCI classification (financial assets measured at fair value with changes recognized in profit or loss), even if stocks double, the gain from the price spread when selling cannot be recognized in the income statement; it can only go into net assets. This means that insurers can no longer “polish” the year’s performance by cashing out at high levels, reducing the incentive to pursue bubbles at elevated valuations.

At the same time, Xu Gaolin pointed out that the cost of selling into weakness becomes larger. Under the old standards, when stocks fall, the losses could remain hidden in unrealized losses. Under the new standards, declines in assets classified as FVTPL (financial assets measured at fair value with changes recognized in other comprehensive income) are immediately reflected in the income statement. But for long-term equity investments designated as FVOCI, losses only affect net assets.

“This is also guiding dividend strategies.” Since only dividend income from FVOCI assets can be recognized in the income statement, insurers are more inclined to invest in blue-chip stocks with stable dividends and low volatility. This investment style is fundamentally countercyclical rather than chasing trends.

Insurance funds remain bullish on the outlook

Based on the combined interviews, market concerns about insurance funds cutting positions may have been overstated. Moreover, from a long-term perspective, the direction of insurance funds’ impact on A-shares still leans positive.

In February of this year, the China Banking and Insurance Asset Management Association released the 2026 Banking and Insurance Asset Management Asset Allocation Outlook—Survey Results on Insurance Institutions.

The survey shows that in terms of broad asset allocation, stocks and securities investment funds are the domestic investment assets that 2026 insurance institutions generally like. For the A-share market specifically, most insurance institutions hold a relatively optimistic view of the A-share market in 2026. In terms of asset allocation, most insurance institutions plan to modestly increase their allocation to A-shares.

The above analysts predict that since the beginning of 2026, both internal and external volatility factors will increase, so insurance funds entering the market will become even more cautious. They will most likely wait until the market direction becomes clear before increasing holdings further.

A person in charge of equity investments at a large top insurance institution told the reporter that he is more inclined to the view that “incremental funds driven by premium growth continue to support the market.”

At the beginning of last year, the China Securities Regulatory Commission guided state-owned large insurance companies to use 30% of each year’s incremental premiums for investing in A-shares. Ge Yuxiang said that in 2025, insurance funds’ stock and fund investments collectively surged by nearly 1.6 trillion yuan. Based on index volatility to estimate, it is estimated that about two-thirds of that comes from gains due to rising market value fluctuations, and one-third comes from insurers’ active willingness to increase positions. Under the neutral assumptions for mid-2026, the estimated incremental funds for the full year are about 713.3 billion yuan.

When it comes to investment strategies for different types of insurance companies, Xu Gaolin said there are some differences in how large and small insurers invest.

He said that large insurers basically focus with certain emphasis within a framework of balanced allocation, while small and mid-sized insurers may need to decide what to do and what not to do, and even make quite individualized investments based on the preferences of major shareholders or decision-makers.

In addition, Xu Gaolin also pointed out that large insurers’ solvency capacity is relatively stable, but small and mid-sized insurers may, for various reasons, drift toward the edge; most large insurers’ rates of return are stable, while small and mid-sized insurers always have those who take the road less traveled. For example, against the background of the stock market’s broad performance in the fourth quarter of 2025 rising steadily, according to a solvency report from a certain small and mid-sized insurance company, the company’s investment return rate in the fourth quarter was negative (-0.08%), and its equity investment decreased quarter-over-quarter by 15.84%.