Sinolink: Relaxation of insurance funds' equity allocation ratio expected to increase equity allocation cap by over 600 billion.

Sinolink released a research report stating that the capital market is expected to perform well in the long term, as the increase of insurance funds entering the market is expected to significantly mitigate the risk of interest rate spread losses. Central Huijin continues to increase its holdings of exchange-traded open-end index funds, and the China Banking and Insurance Regulatory Commission has timely raised the limit on equity investment ratios for insurance companies, actively promoting the entry of medium and long-term funds into the market, demonstrating the regulators' determination to stabilize the market and boost confidence. With the current stabilization and improvement of China's economy, the long-term healthy development of the capital market is unchanged, and the active entry of insurance funds into the market is expected to alleviate the risk of interest rate spread losses and drive valuation recovery. Sinolink's main points are as follows: On April 8th, the China Banking and Insurance Regulatory Commission issued a notice regarding the adjustment of the supervision ratio of equity assets of insurance funds: 1) Increase the upper limit of equity asset allocation. By simplifying the threshold standards and raising the upper limit of equity investment ratio by 5% for insurance companies with comprehensive solvency ratios between 150%-200%, 250%-300%, and exceeding 350%, the space for equity investment is further expanded. 2) Increase the concentration ratio of investments in venture capital funds. The proportion of insurance companies' investment in a single venture capital fund to the fund's paid-in capital shall not exceed 30% (previously 20%), guiding insurance funds to increase their investment in equity of national strategic emerging industries and efficiently serve new productive forces. 3) Relax the regulatory requirements for the proportion of tax-deferred pension insurance.Clarify that the tax-deferred pension insurance general account no longer calculates the investment ratio separately, to support the high-quality development of the third pillar pension insurance. Analysis and Interpretation: By the end of Q4 2024, the comprehensive solvency ratios of property insurance and life insurance were 238.5% and 190.5% respectively, with the corresponding upper limits of equity investment being able to increase by 0% and 5%, so the incremental funds from this round of policy changes are expected to mainly come from the life insurance industry. 1) Simple calculations indicate that the scale of the increase in the upper limit of equity allocation for the life insurance industry is estimated to be 646.1 billion yuan. Specifically, as of the end of 2024, Ping An, Taiping, and China Life had comprehensive solvency ratios of 189%, 298%, and 275% respectively, with the upper limits of equity allocation increasing by 5%. This translates to an increase of 282.7 billion, 69.1 billion, and 37 billion yuan respectively. According to incomplete statistics, of the 74 life insurance companies as of 2024, 35 have increased their upper limits of equity allocation, excluding the 7 listed life insurance companies, this increase ratio is 41.8%, indicating an estimated increase of 257.2 billion yuan for the remaining life insurance companies. 2) Simple calculations indicate that the current additional allocation space for equity investment in the life insurance industry is approximately 2.56 trillion yuan. This is based on the fact that as of Q4 2024, the listed life insurance companies had solvency ratios, equity allocation ratios, and current upper limits of equity allocation as follows: China Life Insurance (208%/21.4%/30%), CPIC Life Insurance (275%/27.9%/40%), New China Life Insurance (218%/19.1%/30%), Taiping Life Insurance (210%/17.2%/30%), Ping An Life Insurance (189%/18.8%/30%), Sunshine Life Insurance (206%/22.9%/30%), with corresponding additional equity allocation spaces of 632.7 billion, 582.3 billion, 378.7 billion, 318.5 billion, 184.9 billion, 89.3 billion, and 36.5 billion respectively. With a solvency ratio of 191%, an equity allocation ratio of 21.9%, and a current upper limit of equity allocation of 30% for the life insurance industry, the additional equity allocation space is estimated at 255.73 billion yuan, subject to considerations of the current solvency status of each insurance company. Risk Warning: 1) Market fluctuations in equity markets; 2) Significant interest rate declines; 3) Policy implementation falling short of expectations; 4) Many assumptions in the calculations, leading to potential discrepancies from actual situations.