Zhongtai: "High Limit and Low Base" for Dividends and Universal Life Insurance Returns Balancing Steady Operation and Interest Rate Risk

Zhongtai released a research report stating that the rebalancing of insurance funds is expected to continue, with the sector likely to maintain the relative and absolute return contributions seen in July during August. The recovery of the equity market over the past two years has significantly improved the investment returns of insurance funds, but the dividend realization rate for listed insurance companies has remained stable with strict limitations on maximum payouts. The settlement rates for universal life policies have stabilized at the bottom, indicating an overall widening of the interest spread is expected gradually. In recent years, regulatory adjustments to the preset interest rates of products have led to a decrease in the guarantee cost rates for new business liabilities. Coupled with a tactical allocation of fixed-income assets, this has achieved a synergistic optimization of liability costs and asset returns, effectively alleviating the pressure on interest spread losses in a low interest rate environment and significantly enhancing the asset-liability matching capability, providing substantial support for the valuation bottom of the sector. The main points from Zhongtai are as follows: The transformation of dividend insurance has become an industry consensus, and increasing the proportion of dividend-type business can optimize duration management and overall liability cost control. In recent years, regulatory guidance has been effective in reducing the floating yield of legacy universal life and dividend insurance products. According to the "Financial Stability Report," by the end of 2024, the settlement rate for universal life insurance across the industry is expected to drop from 4.1% in the same period last year to 3.3%, averaging an 80 basis point decrease, leading to a cost reduction of 27 billion yuan. The dividend level for dividend insurance is set to decline to 3.1%, with an average reduction of 110 basis points, collectively reducing costs by 91 billion yuan. This institution believes the industry needs to balance between the competitive level of product returns and overall liability costs, which tests the company's operational philosophy and reflects regulatory wisdom. The dividend realization rate is an indicator derived from the overall calculation of products, measuring the difference between the actual dividend level of dividend insurance and the expected dividend level. Dividend insurance products can distribute surplus either as cash dividends or increased bonuses, making future distributions of dividends and the dividend realization rate uncertain. By mid-2025, regulatory attitudes toward competition resembling "anti-involution" in a persistently low interest rate environment will use the average financial yield (3.20%) of the life insurance industry over the past three years as a "guideline" for the investment yield corresponding to the intended dividend level. According to disclosures from various companies, this "maximum limit" is still being upheld. In terms of dividend realization rates, the latest products from leading insurance companies (with demonstration rates of 3.5% and preset rates of 1.75%/2.0%) have cash dividend realization rates mostly above 100%, while older legacy products (with demonstration rates of 3.9%/4.5% and preset rates of 2.0%/2.5%) show realization rates generally in the range of 40%-50%. This institution selected four leading insurance companies, namely China Life, Ping An, Taiping, and Xinhua, which have disclosed the latest dividend realization rates, for sample analysis. Taiping's cash dividend customer returns are relatively stable, with corresponding customer yields at 3.29% during the initial phase of the "maximum limit order," leading among top companies. China Life's latest new and old products have reached the regulatory window guidance maximum of 3.2% for dividend levels. For Ping An, most products within the same policy effective period display consistent dividend realization rates, and this year they launched several innovative products that differentiate between dividend accounts, creating distinctive accounts like "Winning Treasure" and "Huiying Treasure." After a two-year low period, Xinhua is showing signs of stabilization during its 30th anniversary, with its "Dividend Special Account II" establishing a multi-dimensional allocation system of "fixed income ballast, equity enhancement, and global allocation." Taiping and Xinhua are the only two among the four companies managing benefit-linked dividend products, and under the "maximum limit order," the dividend differences among companies have further narrowed, making final dividends a means of differentiation. For this period, Taiping's average realization rate for increased bonuses is 70%, while the realization rate for final dividends averages 56%. Xinhua's average realization rate for increased bonuses is 151.6%, and the average for final dividends is 77.8%. The settlement rates for universal life insurance have initially decreased and then stabilized, and are currently still "bottoming out." As of May 2026, the average annual settlement rate for universal life insurance across the industry is 2.70%, down approximately 8 basis points from the average of 2.78% in May 2025. In a horizontal comparison of the settlement rates of the seven legacy companies, Xinhua is relatively the highest at 2.83%, while Taiping Life is relatively the lowest, with overall differences being minimal. According to the latest data (May 2026), key companies universal life settlement rates are 4 basis points lower than that of non-key companies on average. Leading companies maintain relative "restraint" which this institution expects is mainly due to: 1) Regulatory bodies and insurance companies needing to balance between product competitiveness and overall liability costs, as the current universal life settlement rate is already below the maximum client return level of dividend insurance after the cap (3.2%); 2) The 2024 924 market situation has provided substantial price differences and floating profits, which to some extent also supports the bottom level of settlement rates. Risk warning: The transformation of dividend insurance may fall short of expectations. There is a risk of deviations in calculations due to varying preset rates, demonstration rates, and allocation ratios of different account products at different periods by various companies, affecting dividend levels. Significant volatility in the equity market may negatively impact investment returns for insurance companies.