CITIC Securities: Expect the insurance sector adjustment to end; recommend actively seizing major opportunities

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CITIC Securities Research | Tong Chengdun Zhang Junxiang Xue Jiao

The insurance sector has fallen 15% since the beginning of the year, mainly influenced by external factors. A price-to-book ratio of 1x is a reliable indicator for positioning. The fundamental cycle upward trend has been established by 2025, with strengthened momentum since the first quarter of 2026, including continued reduction of debt costs on the liability side, more options on the asset side, and strict regulation curbing internal competition to promote market share concentration. Meanwhile, we look forward to the implementation of policies related to the “14th Five-Year Plan,” which will promote the coordinated development of medical insurance and commercial insurance, achieving a win-win situation for patients, hospitals, doctors, innovative drugs, and insurance companies. The insurance sector is expected to complete its adjustment phase, and investors should actively seize major opportunities.

▍The insurance sector has fallen 15% since the beginning of the year, mainly influenced by external factors. A price-to-book ratio of 1x is a reliable indicator for positioning.

Since the start of the year, reasons for the decline in the insurance sector include: 1) reduction by national funds, breaking the expectation of a unilateral bull market; 2) US AI narratives impacting insurance intermediaries; 3) Middle East war triggering global economic stagnation expectations; 4) insurance companies’ equity holdings are relatively high, and their first-quarter 2026 reports will be affected by stock market declines. Due to these factors, current valuations have reverted to relatively low historical levels. Based on the A-share insurance index, the overall PB range over the past decade has been 1-3x, with a median of 1.75x. Currently, the static PB is 1.26x, offering a significant safety margin compared to the sector’s 10%-15% ROE range; notably, the weightings of China Ping An have a static PB of 1x, with an ROE of 13%-15%. Historically, when PB is below 1x, investing in China Ping An has often seen valuations return above 1x PB, mainly because insurance companies’ balance sheets are already fully priced at fair value, making net asset indicators a reliable entry point.

▍The fundamental cycle upward trend has been established by 2025, with momentum since the first quarter of 2026 further strengthening.

The logic behind the upward cycle in 2025 is: savings deposits shifting to insurance, insurance products transitioning from traditional to dividend insurance, market share concentrating among large and medium-sized insurers, interest rates bottoming out and bond yields steepening, coupled with insurance companies actively entering the market and sharing in the bull market. Compared to 2025, since 2026, we believe the long-term upward trend of the fundamentals has been further consolidated, including:

1) From the liability side, the structure is more concentrated, and liability costs continue to decline. Asset prices have experienced significant volatility, breaking the expectation of a unilateral bull market in stocks and gold. Dividend insurance-based fixed-income products have become preferred low-risk assets; insurance companies further reduce liability costs, with some launching dividend policies with minimum interest rates of 1.5% and 1.25%. Regulatory guidance is also encouraging insurers to lower demonstration interest rates; regulators have surveyed the fee structures of major insurance companies’ bancassurance channels and issued stricter regulatory documents, implying future market competition will be fairer, with costs likely to decrease further. Market share will become more concentrated among leading players, and in the long run, we expect a competitive landscape dominated by 3-5 top companies.

2) From the investment side, stock and bond markets have adjusted, providing good opportunities for asset allocation. Since the second half of 2025, bond markets have been in a downward trend. Yields on 30-year government bonds, local government bonds, and ultra-long-term bonds, after tax considerations, offer relatively advantageous allocation opportunities, allowing insurers to earn risk-free long-term yield spreads. As the stock market has corrected this year, the unilateral bull market expectation has been broken, and high-quality, profit-stable, dividend-growing companies have regained attractiveness. Overall, insurance funds are shifting from FVTPL stocks to FVOCI. Although stock market volatility will impact insurers’ first-quarter 2026 net profits to some extent, this is not the main factor determining investment value. Profit fluctuations on a quarterly basis have a low success rate for trading insurance stocks; instead, short-term profit declines caused by market factors will create good long-term investment opportunities.

3) Meanwhile, as strategic investors, participating in targeted share placements of listed companies will be an important way for insurance funds to expand long-term returns. In the first quarter of 2026, the China Securities Regulatory Commission issued the “Decision on Amending the ‘Opinions on the Application of Securities and Futures Laws (Draft for Comments),’” expanding the types of strategic investors. It explicitly states that institutions such as the National Social Security Fund, Basic Pension Insurance Fund, Enterprise (Occupational) Annuity Funds, specific commercial insurance funds, public funds, and bank wealth management can act as strategic investors, using patient capital as a strategic resource for corporate investments. The rules will define these investors as capital investors, while other industrial investors are categorized as industry investors. The CSRC also plans to specify minimum shareholding requirements, insisting that strategic investors hold a significant proportion of shares—generally no less than 5%—and participate in corporate governance accordingly. This will significantly boost insurers’ enthusiasm for increasing equity investments, which can be accounted for under the equity method, unaffected by stock price fluctuations. It will also actively promote business synergies between listed companies and insurers, especially in sectors like healthcare, elderly care, technology, and infrastructure.

▍The “14th Five-Year Plan” emphasizes the importance of commercial insurance, with expected policy support for commercial health insurance, long-term care insurance, and personal pensions, which may drive the integration of medical and commercial insurance and promote the development of insurance ecosystems.

The “14th Five-Year Plan” states: accelerate the development of a multi-layered, multi-pillar pension system; expand coverage of enterprise annuities; improve personal pension policies; vigorously develop commercial pension insurance. Improve the multi-level medical security system, optimize cross-region medical settlement, and fully leverage the supplementary role of commercial medical insurance. Encourage innovation in drugs and medical devices within commercial insurance, and expand coverage for innovative drugs. Implement long-term care insurance and establish a unified elderly ability assessment system. According to the “Opinions on Accelerating the Establishment of a Long-term Care Insurance System” issued in March 2026, the goal is to establish a basic long-term care insurance system within about three years, with a total premium rate around 0.3% (0.15% from employers and 0.15% from individuals), providing basic living and medical care reimbursement for insured persons with lost mobility. This marks the transition of long-term care insurance from pilot phases since 2016 to a nationwide basic system.

▍Risk factors:

Significant stock market volatility; long-term decline in interest rates; insurance policy sales growth below expectations.

▍Investment strategy: It is expected that the insurance sector’s adjustment will conclude, and investors should actively seize major industry development opportunities, paying more attention to leading companies in the oligopoly environment.

The insurance sector has fallen 15% since the beginning of the year, mainly influenced by external factors. A price-to-book ratio of 1x remains a reliable indicator for positioning. The fundamental cycle upward trend has been established by 2025, with momentum since the first quarter of 2026 further strengthening, including continued reduction of debt costs, more asset options, and strict regulation curbing internal competition to promote market share concentration. Meanwhile, we look forward to the implementation of policies related to the “14th Five-Year Plan,” which will promote the coordinated development of medical and commercial insurance, achieving a win-win for patients, hospitals, doctors, innovative drugs, and insurers. The sector is expected to finish its adjustment phase, and investors should actively seize major opportunities, maintaining a “better than the market” rating. Focus on leading insurance companies amid further market concentration, and also monitor companies that could benefit from policies supporting commercial health insurance.