Reducing risk factors for certain investment operations of insurance companies further unleashes the vitality of insurance capital.
The reduction of risk factors for certain investment categories by insurance funds, as implemented by regulators this time, is expected to enhance the efficiency and returns on capital deployment by insurers while promoting the stable and healthy development of the capital market. This, in turn, is likely to improve the operating performance of insurance companies.
According to Zhitong Finance APP, Dongxing Securities released a research report stating that during a period of significant transformation in Sino-US economic and trade relations, the capital market bears greater responsibilities for stability and development. At this juncture, the role of insurance funds as a “stabilizer” in the capital market becomes particularly crucial. The recent reduction by regulators of risk factors for certain investment categories of insurance funds is expected not only to promote the steady and healthy development of the capital market but also to enhance the efficiency of insurance companies’ fund utilization and investment returns, thereby improving their operating performance. Additionally, improvements in the operational environment of the capital market will directly drive the release of brokerage performance.
The main viewpoints of Dongxing Securities are as follows:
The Financial Regulatory Authority issued the ‘Notice on Adjusting Risk Factors for Relevant Business of Insurance Companies.’
The notice aims to guide insurance companies to enhance their long-term investment management capabilities, strengthen asset-liability matching management, better leverage the patient capital role of insurance funds, effectively serve the real economy, and promote the sustained and stable operation of insurance companies. The adjustment of risk factors primarily includes two aspects: first, differentiated settings for risk factors of CSI 300 Index constituent stocks, CSI Dividend Low Volatility 100 Index constituent stocks, and STAR Market stocks held by insurance companies based on holding periods to foster and expand patient capital and support technological innovation; second, adjustments to premium risk factors and reserve risk factors for export credit insurance business of insurance companies and overseas investment insurance business of China Export Credit Insurance Corporation to encourage insurers to increase support for foreign trade enterprises and effectively serve national strategies.
The process of de-globalization and the US-China trade风波 have introduced significant unpredictability into the pace of domestic economic recovery.
Specifically, the adjustments are divided into three points: 1) The risk factor for CSI 300 Index constituent stocks and CSI Dividend Low Volatility 100 Index constituent stocks held by insurance companies for more than three years has been reduced from 0.3 to 0.27. This holding period is determined based on the weighted average holding period over the past six years; 2) The risk factor for common shares of STAR Market-listed companies held by insurance companies for more than two years has been reduced from 0.4 to 0.36. This holding period is determined based on the weighted average holding period over the past four years; 3) The premium risk factor for export credit insurance business of insurance companies and overseas investment insurance business of China Export Credit Insurance Corporation has been reduced from 0.467 to 0.42, and the reserve risk factor has been reduced from 0.605 to 0.545.
The bank believes that since the beginning of the year, the de-globalization process and the US-China trade风波 have introduced significant unpredictability into the pace of domestic economic recovery, with capital market volatility remaining at a relatively high level. At this critical juncture, long-term and patient capital such as insurance funds have become key factors in stabilizing capital market confidence and continuously supplementing market liquidity, requiring continuous vitality under policy support. The recent reduction by the Financial Regulatory Authority of risk factors for insurance funds investing in CSI 300 Index constituent stocks, CSI Dividend Low Volatility 100 Index constituent stocks, and STAR Market stocks will effectively accelerate the entry of insurance funds into the market and smooth out market fluctuations. The indices involved include CSI 300, Dividend Low Volatility 100, and the STAR Market Index, which broadly cover major broad-based indices and mainstream investment styles, offering wide-ranging and strong support. Whether it is large-cap blue chips, high-dividend stocks, or technology growth sectors, all are expected to receive fresh inflows, benefiting the balanced and healthy development of the equity market. Additionally, the targeted reduction of risk factors for export credit insurance and overseas investment businesses is expected to effectively promote business collaboration between insurance companies and foreign trade enterprises, expedite the international expansion of domestic competitive enterprises, and better serve core national strategies such as the Belt and Road Initiative.
Investment Advice: From the perspective of investment targets, the Matthew Effect in the non-banking financial sector is increasingly strengthening, with industry-leading institutions having more capacity and opportunities to participate in policy innovations, seize the window of policy dividends, and improve their operating performance. Therefore, it is recommended to continue focusing on the investment value of leading companies in the industry. Moreover, against the backdrop of the flourishing development of ETFs, given the differentiation in investment needs, the investment value of securities and insurance ETFs should also remain a key focus.
Risk Warning: Risks of macroeconomic downturn, policy risks, market risks, and liquidity risks.
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