Huaxi: Life insurance premiums in January-February are under pressure year-on-year, with the cost of liabilities expected to improve.

Huaxi released a research report stating that life insurance premiums were under pressure in January and February, with improved growth in February; both auto insurance and non-auto insurance premiums achieved stable growth. On the liability side, insurance companies are shifting their focus to dividend insurance products and expanding distribution channels, which may continue to put pressure on new policy data in the short term. However, in the long term, insurance companies' liability costs are expected to continue to decline, easing pressure on profit margins. Benefiting from continued marketing efforts by auto manufacturers and sustained demand in the new car retail market, property insurance premiums are expected to continue to grow steadily, with risk reduction by major insurance companies potentially leading to improvements in combined ratios. On the asset side, the downward trend in long-term interest rates since 2024 may make equity investments a winning strategy. Key points from Huaxi: Life insurance: Premiums were under pressure in January and February, with improved growth in February In January and February 2025, the original premium income of life insurance companies totaled 1,195.1 billion yuan, a year-on-year decrease of 2.6%. The original premium income from life insurance/accident insurance/health insurance was 1,020.9/7.0/167.2 billion yuan, representing year-on-year changes of -3.5%/-1.1%/+3.0% respectively. Huaxi believes that the pressure on cumulative premiums in the first two months is mainly due to: 1) Overdraft on demand due to previous "speculative sales" activities, 2) Insurance companies shifting their sales focus to dividend insurance products in 2025, but the market acceptance of these products still needs improvement, 3) Decreased sales enthusiasm in channels under the "combined reporting model". In February alone, the original premium income of life insurance companies was 332.8 billion yuan, a year-on-year increase of 2.6%. The original premium income from life insurance/accident insurance/health insurance was 264.6/2.7/65.4 billion yuan, with year-on-year changes of +2.4%/+6.0%/+3.2% respectively, showing improvements from January, mainly due to the impact of the lunar new year "off-month effect" on the low base. The additional premiums paid by policyholders for investment funds in the first two months of 2025 (mainly universal life insurance) totaled 204.6 billion yuan, a year-on-year decrease of 6.4%, with a month-on-month decrease of 26.4% in February; the independent account additional premiums for investment-linked insurance totaled 20 billion yuan, a year-on-year decrease of 6.1%, with a month-on-month decrease of 10.8% in February. Property insurance: Auto and non-auto insurance premiums both achieved stable growth in January and February In January and February 2025, the original premium income of property insurance companies totaled 320.3 billion yuan, a year-on-year increase of 4.7%. The original premium income from auto insurance/non-auto insurance was 143.1/177.2 billion yuan, with year-on-year changes of +4.3%/+5.1% respectively. In February alone, the original premium income of property insurance companies was 120.9 billion yuan, a year-on-year increase of 9.4%, with auto insurance premium income reaching 53.9 billion yuan, a year-on-year increase of 5.4%, mainly due to a strong start in the car market after the lunar new year. According to the China Passenger Car Association, with macroeconomic conditions at home and abroad performing better than expected and consumer sentiment relatively stable, combined with continued marketing activities by auto manufacturers during the lunar new year period and a low base in February last year, the national retail sales of passenger vehicles reached 1.386 million units in February, a year-on-year increase of 26.0%; non-auto insurance original premium income was 67.0 billion yuan, a year-on-year increase of 12.9%, with health insurance/accident insurance/liability insurance/agricultural insurance growing by +19.8%/+16.8%/+12.7%/+0.6% respectively compared to the previous year, showing an overall increase from January, mainly due to the impact of the lunar new year's off-month effect on the low base. Asset side: Insurance funds increased their allocation to bonds in the fourth quarter of 2024, significantly improving investment returns As of the end of the fourth quarter of 2024, the balance of insurance funds totaled 33.258 trillion yuan, an 18.1% increase from the end of the previous year, mainly benefiting from steady growth in premium income and increased market value of assets. The annualized financial investment return rate in 2024 was 3.43%, an increase of 1.20 percentage points compared to the previous year, with a quarter-on-quarter increase of 0.31 percentage points; the annualized comprehensive investment return rate was 7.21%, an increase of 4.00 percentage points compared to the previous year, with a quarter-on-quarter increase of 0.05 percentage points, mainly due to the rebound in the equity market in 2024. As of the end of the fourth quarter of 2024, the combined allocation of bank deposits by life and property insurance companies accounted for 9.0% (unchanged from the previous quarter), bond allocation accounted for 49.5% (an increase of 1.1 percentage points from the previous quarter), stock and fund allocation accounted for 12.8% (a decrease of 0.5 percentage points from the previous quarter), and long-term equity investment accounted for 5.2% (a decrease of 0.5 percentage points from the previous quarter). Recommended stocks Stable liability-focused Ping An Insurance (601318.SH) and China Pacific Insurance (601601.SH); equity-flexible pure life insurance targets New China Life Insurance (601336.SH) and China Life Insurance (601628.SH); continuously optimized business of The People's Insurance (601319.SH). Risk alerts Equity market volatility risk; long-term interest rate decline risk; lower-than-expected product demand; increased risk from natural disasters.