20230913-招银国际-China_Insurance_Optimized_solvency_measurement_opens_room_for_insurance_funds_participation_in_equity_investment_6页_625kb

According to the report authored by Nika MA of CMB International Global Markets, the National Administration of Financial Regulation (NAFR) issued a notice on September 10, 2023, to optimize the solvency measurement standards for Chinese insurance companies. The main objectives are to improve the allocation of insurance funds supporting equity investments and enhance the risk tolerance thresholds for equity-linked stocks under the new capital regulations. Key adjustments include differentiated minimum capital requirements based on company size, increased inclusion of future surplus in core capital for life insurers, reduced capital charges for CSI 300 and STAR Market investments, and guiding funds towards technological innovation. These changes are expected to free up RMB 190-200 billion in capital funds, contributing to a 14-15% increase in the industry’s solvency ratio, particularly benefiting mid-sized and smaller insurers. The supportive regulatory environment is viewed as conducive to capital market development and insurers’ asset performance, aligning with long-term market recovery trends.

In risk factor terms, there was a reduction for CSI 300 Index stocks (from 0.35 to 0.3) and the STAR Market (from 0.45 to 0.4). Enhanced clarity on differentiated minimum capital requirements and future surplus inclusion provides more flexibility for asset allocation. The analysis uses 6M 2023 statistics to estimate the potential capital release and its impact on the insurance sector.

The outlook is “OUTPERFORM” with constructive ratings for the broader sector, noting China Life (2628 HK) and Ping An (2318 HK) as key recommendations. However, risks cited include further declines in long-term Treasury yields, weaker-than-expected sentiment, and uncertainties in insurance fund returns.