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

Ask AI · How should the second-generation solvency regulation guide insurance funds toward long-term investment?

21st Century Business Herald reporter Lin Hanyao, Yu Jixin

Recently, there has been a notable pullback in the A-share market. The Shanghai Composite Index has fallen below a key psychological integer level, and market sentiment was once low. At the same time, a rumor has spread rapidly across the investment community: “Small and mid-sized insurance companies, due to the full implementation of second-generation solvency regulation requirements, are forced to significantly reduce their holdings of equity assets, which triggers a chain reaction of sell-offs in the market.” Some observers have even treated this claim as the core trigger for the current round of adjustment, sparking heated discussion within the industry.

However, based on interviews conducted by the reporters with insurance institution executives, chief non-bank financial analysts at brokerages, and university scholars, multiple viewpoints indicate that this rumor does not hold up.

Interviewees generally believe that while small and mid-sized insurers do reduce their positions, the scale is limited and it is not the main cause of the market’s decline. Large insurers, in contrast, overall show steady performance or even a modest increase in positions; the property of insurance funds as long-term capital has not fundamentally changed. Although new accounting standards and solvency regulation affect investment behavior, they mainly guide the industry to shift toward long-term value investment rather than intensify the pattern of chasing rallies and selling in panic.

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

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

An insurance company’s solvency refers to its ability to fulfill its claims obligations to policyholders. It is typically measured by the core solvency ratio and the comprehensive solvency ratio.

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

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

China’s solvency regulation system for insurance companies has evolved from “first-generation solvency,” to “second-generation solvency,” and then to “second-generation solvency, phase two.”

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

Therefore, some believe that the end of the first quarter of 2026 coincides with the quarterly solvency assessment timing. Small and mid-sized insurance companies would reduce holdings to “beautify” their reports and meet regulatory requirements, and thus are forced to sell stocks before quarter-end. This passive position cutting is said to trigger a chain of deleveraging by leveraged funds, ultimately leading to a sharp market drop.

But multiple interviewees do not accept this view.

A chief non-bank financial analyst at a securities firm told reporters that second-generation solvency, phase two, and the coming phase three impose higher requirements on insurers’ solvency adequacy ratios, which will inevitably affect insurers’ selection of equity investment targets. However, most insurers’ equity investment proportions are far below the cap; as of now, there is no large-scale risk, nor any need for forced position reduction.

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

“If small and mid-sized insurers reduce their positions to meet solvency requirements, they should reduce in batches before the end of 2025 rather than reducing in the first quarter of 2026,” Xu Gaolin pointed out. “On the contrary, with the new policy at the end of 2025 lowering risk factors, it is consistent with logic that insurance companies increase holdings.”

According to information, the National Financial Regulatory Administration had issued, at the end of 2025, a notice titled “Notice on Adjusting Risk Factors for Relevant Business of Insurance Companies,” which reduced risk factors for the portion of stocks invested by insurance companies, thereby lowering the risk capital consumption of their equity-class assets.

In a reporter interview, Ge Yuxiang, chief non-bank financial analyst at CITIC Securities, also noted that this year the main pressure on insurance companies comes from the decline in the 750 evaluation curve, which puts pressure on actual capital (the solvency denominator). Currently, insurers’ equity holdings and scale are both at historically high levels. While recent market declines do create some pressure, solvency is not the main constraint.

The scale of position cutting is unlikely to move the whole market

Even if some individual small and mid-sized insurance companies do reduce positions, experts interviewed believe its impact is a “local phenomenon” and difficult to form systematic selling pressure.

Latest data from the financial regulator shows that as of the end of 2025, the balance of funds utilized by the insurance industry reached RMB 38.5 trillion, up 15.7% from the beginning of the year, marking the highest growth rate since 2021. Among them, the allocation scale of core equity assets, including stocks plus securities investment funds, increased by RMB 1.6 trillion more than at the beginning of the year. The balance of stock investments reached RMB 3.73 trillion, accounting for nearly 10% of total investment.

According to Xu Gaolin’s calculations, as of the end of 2025, large and mid-to-large leading insurers hold about RMB 3 trillion, while the total equity position of all remaining small and mid-sized insurers is only around RMB 730 billion.

“Then picking out the companies that truly have solvency problems and thus need to sell stocks—its proportion is extremely low,” he analyzed. “Even if small and mid-sized insurers collectively sell off 10% to 20% of their holdings, it would be only around RMB 385k. And current A-share average daily trading volume has already been above RMB 2 trillion; this magnitude is far below the market’s normal day-to-day fluctuation in fund volume, so it is hard to change the overall supply-demand pattern.”

Therefore, the chief non-bank financial analyst cited above said that, in theory, it is not operational for small and mid-sized insurers to reduce positions simultaneously. Even in extreme situations, the market impact would be relatively limited.

As for why the market attributes stock market declines to position reductions by small and mid-sized insurers, Xu Gaolin explained that there are many small and mid-sized insurers and their voices are mixed; individual actions are easier to be amplified and observed. Meanwhile, the buying by leading insurers is quiet and dispersed within periodic reports. Market participants are more likely to see the selling actions of a few small and mid-sized institutions, but overlook the trillion-RMB-level purchase data from leading institutions, forming a one-sided impression that insurance capital is selling, even though the actual situation is that purchases are far greater than sales.

In a reporter interview, Xu Tianshu, chief investment officer of Sinmei Mutual Life, pointed out that insurance companies, overall, are an important investment force in the market, but not a decisive one. Their influence is mainly reflected at the margin in specific sectors such as high-dividend areas, and their impact on the entire market or other sectors is limited. Because insurance companies typically do not switch portfolios frequently, they hold positions for longer periods, and they are not inclined to frequently chase market hotspots, nor do they generally engage in leveraged investments in the stock market.

Ge Yuxiang said: “We expect small and mid-sized insurers’ total asset size to account for about 30% of the insurance capital. Current trading activity in the A-share market is still at a relatively high level. And without considering the feasibility of a collective position reduction operation, a single type of funds alone cannot change the market’s own operating rules.”

In addition, Ge Yuxiang noted that insurance capital needs to seek a balance among three financial objectives: the solvency adequacy ratio, the investment return target, and asset-liability matching. Second-generation solvency introduces counter-cyclical adjustments to risk factors for stock investments (risk factor introduced with feature coefficient K1). This reduces, to some extent, insurance companies’ impulse to “chase rallies and sell into panics.” There may be some room for operations around quarter-end, but the scale will not be large.

External macro shocks are the main factor behind the overall market decline

Since small and mid-sized insurers are not the culprit behind the sell-off, what is the true reason for this round of market adjustment?

Interviewees generally point to external macroeconomic factors.

Xu Tianshu said directly that the main driver of this round of stock market declines was not small and mid-sized insurance companies, but rather a disruption to the logic of the previous rally caused by unexpected financial reports from a sudden war and internet giants, which then triggered a sharp adjustment. The decline triggered passive deleveraging and position reductions by leveraged funds, forming a negative feedback loop. Insurance companies are only one link in the chain; some companies, due to declines being too large, reduced positions to affect net assets and solvency, but the main cause should not be blamed on insurance companies.

Ge Yuxiang pointed out that currently the positions of public funds, insurance capital, private funds, and retail investors are all not low. In recent days, market trading has been sluggish relative to expectations, dragging down index performance. After the market broke below key integer level points, funds across the board faced selling-loss pressure to varying degrees.

Although the claim of “insurance capital reducing positions drives declines” is hard to substantiate, multiple experts interviewed also said that new accounting standards and solvency regulation have indeed profoundly changed insurance companies’ investment behavior and, under certain circumstances, may further amplify market volatility.

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

He analyzed that under new accounting standards, large insurance companies have stronger risk resilience and more tools. They can filter out market volatility through long-term equity investments and by establishing privately managed funds. Small companies have relatively fewer tools; they can only respond by placing high-dividend stocks into the OCI account and flexibly adjusting their positions.

“Large companies have strong solvency and can withstand market shocks, while small and mid-sized companies lack this capacity.” Therefore, Xu Tianshu said that under the new solvency regulation framework, these factors will indirectly increase stock market volatility to some extent, and insurance companies’ long-term capital is forced, to a degree, to exhibit characteristics of short-term capital.

While new accounting standards objectively increase the pressure of profit-and-loss statement volatility for insurance companies, Xu Gaolin said that the institutional design of the new standards is intended to guide insurers to avoid “chasing rallies and selling into panics” and to shift toward long-term value investment.

“Chasing rallies has become meaningless.” 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 gains in the price spread when selling cannot be recorded in the profit and loss statement; they can only be recorded in net assets. This means insurers can no longer “window-dress” the year’s performance by cashing out at high prices, thereby reducing the incentive to chase bubbles at high levels.

At the same time, Xu Gaolin noted that the cost of selling into declines is higher. Under the old standards, when stocks fell, insurers could hide the unrealized losses in floating loss. Under the new standards, if assets classified under FVTPL (financial assets measured at fair value with changes recognized in other comprehensive income) decline, the drop will immediately be reflected in the profit and loss statement. But for long-term equity investments designated as FVOCI, declines only affect net assets.

“This is also guiding dividend strategies.” Because only dividend income from FVOCI assets can be recorded in the profit and loss statement, it encourages insurers to invest more in blue-chip stocks with stable dividends and low volatility. The investment style of this kind is essentially counter-cyclical rather than chasing trends.

Insurance capital continues to look positively at the outlook

Based on the combined interviews, concerns about insurers reducing positions may have been amplified. Moreover, from a medium-to-long term perspective, the direction of insurance capital’s impact on the A-share market remains generally positive.

In February this year, the China Banking and Insurance Asset Management Association released the survey results of insurance institutions regarding their outlook on asset allocation for bank and insurance asset management assets in 2026.

The survey showed that in terms of major asset allocation, stocks and securities investment funds are the domestic investment assets that insurance institutions generally favor in 2026. In the A-share market, most insurance institutions hold a relatively optimistic view of the A-share market in 2026. In asset allocation, most insurers plan to slightly increase allocation to A-shares.

The analysts above predicted that since both internal and external volatility factors increase since early 2026, insurance capital entering the market will be even more cautious and, most likely, will wait until the market direction becomes clearer before making further increases in positions.

A person in charge of equity investment at a large leading insurance institution told reporters that he is more inclined toward the view that “the incremental capital brought by premium growth continues to support the market.”

At the beginning of last year, the China Securities Regulatory Commission guided state-owned large insurers to use 30% of each year’s新增保费 to invest in A-shares. Ge Yuxiang said that in 2025, insurance funds invested in stocks and funds surged by nearly RMB 1.6 trillion in total. Based on index fluctuation to estimate that about two-thirds of that contribution came from market value fluctuations and rising gains, and one-third came from an active willingness to increase positions. Under a neutral assumption for 2026, the estimated incremental capital for the full year is about RMB 713.3 billion.

With respect to investment strategies of different types of insurance companies, Xu Gaolin said that there are some differences in investment behavior between large and small/mid-sized insurers.

He said that large insurers basically have some emphasis within the framework of balanced allocation, but small and mid-sized insurers may need to do and not do certain things, and even make fairly individualized investments according to the preferences of major shareholders or decision-makers.

In addition, Xu Gaolin pointed out that the solvency of large insurers is relatively stable, but small and mid-sized insurers may always slide toward the margin due to various reasons. Large insurers’ returns are mostly stable, but small and mid-sized insurers always have some who take “odd routes.” For example, against the background of a broader A-share market strengthening gradually in the fourth quarter of 2025, according to a solvency report of 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 investments decreased by 15.84% quarter-on-quarter.