The Zhitong Finance App learned that since mid-April, the insurance sector has accumulated a cumulative increase of more than 20%. Individual stocks have risen by 49.04%, China Taibao (02601) 30.94%, China Life Insurance (02628) 24.27%, Xinhua Insurance 23.57% (01336), and Ping An of China (02318) 19.64%, respectively. China Merchants Securities believes that as asset-side stock markets, real estate, and interest rates usher in triple catalysis, the constraints that suppress profit performance and stock price valuation in the life insurance sector are expected to be fully opened up. Looking back, the life insurance sector, which has undervaluation, low holdings, and low expectations, is still an excellent choice reflecting the equity market, real estate expectations, and interest rate environment.

1. With strong policies and support from foreign investors, the equity market may be facing a reversal of the difficult situation. Insurance stocks with strong beta attributes have great upward elasticity. On the one hand, a series of policy combinations have injected a “strengthening agent” into the market from the beginning of the year to date. On the other hand, current US stock valuations have reached a historically high position and are difficult to digest through simple interest rate cuts. A/H shares have had the weakest correlation with US stocks in the global equity market from 2018 to now, and the RMB has performed well in the wave of depreciation of Asian currencies caused by a strong US dollar in April this year. As a result, the attractiveness of domestic equity assets has increased among international capital options to spread risk in the US and Japan stock markets. Recently, the return of capital from North China has accelerated. The Hong Kong stock insurance sector has taken the lead in surging. Since May, Hong Kong stock life insurance targets have all risen by more than 20% (China Taiping 29.17%, China Taibao 27.60%, China Ping An 26.43%, China Life Insurance 24.76%, and Xinhua Insurance 20.37%) is superior to A-share performance. It is expected that as equity market sentiment improves in the future, A-shares are expected to continue their steady upward trend, and the insurance sector will also usher in more room for valuation repair.

2. A new round of real estate stabilization and inventory removal policy combinations has begun, and the asset quality of insurers that invest more in housing is expected to improve markedly. On May 17, the National Video Conference on Effectively Securing Housing was held in Beijing. On the same day, the Central Bank and the General Administration of Financial Supervision issued a number of documents, which generally revolved around four aspects of real estate loosening policies: first, “three arrows go hand in hand” on the demand side to lower the down payment ratio, abolish the lower interest rate limit, and lower the provident interest rate rate; the second is to set up 300 billion refinancing instruments on the supply side to support local state-owned enterprises to collect stored commercial housing and promote the removal of “existing housing”; the third is to support local governments to recover and buy unused residential land; four is to improve “home security” Fight hard, make full use of real estate financing coordination mechanisms, and promote the inclusion of more projects” “White list”. Taken together, the introduction of relevant policies exceeds market expectations, and the combined efforts of supply and demand are expected to play a role in “credit repair” and “credit entity replacement” for housing enterprises and financial institutions. Specifically, the investment layout of insurance funds in real estate, mainly includes property rights, equity, claims and non-standard methods. In recent years, the overall pressure trend has been declining. By the end of 2023, listed insurers accounted for less than 5% of the real estate investment balance. However, the growing debt problems of housing enterprises in the past have all caused investors to pay close attention to the quality of insurance companies' assets. It is expected that as policy expectations improve, the insurance sector, especially life insurance targets, is also expected to benefit from the spread and spillover of this round of real estate chain market.

3. Long-term interest rates are expected to rise steadily, which will effectively mitigate the negative expectations of insurers' investment side and interest rate spreads. The continued decline in interest rate centers and the relative rigidity of insurance product debt costs have caused the industry to continue to pay attention to potential interest spreads and losses over the long term. In an interview with the Financial Times on April 23, the head of the relevant department of the People's Bank of China said that with the issuance of ultra-long-term special treasury bonds in the future, the “asset shortage” situation will ease, and long-term treasury bond yields will also pick up; on April 30, the Political Bureau of the CPC Central Committee held a meeting to emphasize “the need to issue and make good use of ultra-long-term special treasury bonds early, speed up the issuance and use of the necessary fiscal expenditure intensity” and “the flexible use of policy tools such as interest rates and deposit reserve ratios”; on May 17, 2024 ultra-long-term special treasury bonds were successfully launched, 40 billion yuan 30-year treasury bonds The coupon interest rate determined by tender is 2.57% in line with market expectations. At the same time, the central bank's media quoted market participants and believed that judging from the normal operation of the market in recent years, 2.5% to 3% may be a reasonable range for long-term treasury bond yields. It is expected that as special treasury bonds begin to be issued, bond supply will rise further, and there is room for subsequent interest rate cuts. The use of fiscal capital will also help improve fundamentals and boost market expectations. Long-term interest rates may gradually rise after finding a phased bottom, thus driving the procyclical insurance sector to usher in profit releases and valuation repairs.

Furthermore, the trend of recovery on the life insurance debt side is clear, and the interim report is expected to continue to be strong. Against the backdrop of continued strong supply and demand for savings insurance, NBV, the major listed insurers in 24Q1 all achieved strong growth of more than 20%, and the Q2 single quarter is also expected to perform well under the high base of the same period last year. It is expected that the NBV growth rate of all 24H1 companies is expected to maintain a double-digit level. Further release of team transformation dividends will also help to better form positive feedback.

Investment advice: Maintain industry recommendation ratings. As of May 17, the valuations of listed insurers were China Life Insurance 0.70xPEV, China Ping An 0.56xPEV, China Taibao 0.51xPEV, Xinhua Insurance 0.42xPEV, China Taiping 0.12xPEV, and China Financial Insurance 0.85xPb, respectively. The share of public offering positions in the 24q1 insurance sector fell 0.18pt to 0.15% month-on-month, the lowest level in nearly two years, and far below the standard (1.55%). An insurance sector with undervaluation, low holdings, and low expectations, or an excellent choice reflecting the equity market, real estate expectations, and interest rate environment at the moment.

Risk warning: The stock market is sluggish; interest rates are declining; product attractiveness is declining; economic growth is weak; the transformation of the life insurance industry continues to fall short of expectations; and regulations are being tightened.