Zhongtai Securities Co.,Ltd. has released a research report indicating that in the current low-interest-rate environment, insurance companies face challenges from duration gaps and income gaps. On one hand, regulatory indicators for life insurance companies require an effective duration gap within ?5 years, pushing institutions to extend the duration of fixed-income assets and increase allocations to government bonds. On the other hand, under persistently low rates, the relative rigidity of liability costs makes it crucial to address potential hidden risks of negative spreads. Objectively, with the implementation of a series of regulatory policies, the industry's overall modified duration gap has effectively narrowed, enhancing asset-liability matching capabilities and providing solid support for the sector's valuation floor. The rebalancing of capital flows is expected to continue, with the sector likely to repeat the relative and absolute gains seen in July this year.

Duration Gap Management is the core of asset-liability management for life insurance companies in the current low-interest-rate environment. If the duration gap is negative, it means the liability duration exceeds the asset duration. When the yield curve shifts in parallel, the change in asset value will be smaller than the change in liability value, introducing interest rate risk and reinvestment risk. Based on data availability and comparability, this report uses size-adjusted modified duration gap as the analysis metric. The draft of the new asset-liability regulations requires optimizing the calculation standards, adjusting stress scenarios based on macroeconomic changes, and incorporating the risk-hedging effects of financial derivatives into duration calculations. This report summarizes the duration gap data from the bond rating disclosures of the industry's major life insurance companies. Before 2024, the widening of the duration gap was primarily driven by both asset and liability sides. Since 2025, the gap has shown signs of narrowing for the sample companies. The report estimates that the current average duration gap for the insurance industry is about -9 years, with a trend of reduction observed since 2025.

The life insurance industry exhibits a "Matthew effect," and this report divides the analysis of duration gap data into large and small-to-medium life insurance companies to more accurately reflect the asset-liability characteristics and duration management differences across companies of varying sizes. Based on a comprehensive review of data from the Insurance Asset Management Association and the "Insurance Yearbook," from 2020 to 2022, the asset-liability duration gaps for Chinese life insurance companies were -6.67 years, -6.57 years, and -6.28 years, respectively. Since 2025, the gap has shown a decreasing trend. The duration gap for small-to-medium life insurance companies is relatively larger, with most showing a year-on-year expansion from 2022 to 2024, and a narrowing trend from 2024 to 2025. Based on sample calculations, the weighted average duration gaps for these companies from 2022 to 2025 were -9.26 years, -9.82 years, -11.10 years, and -8.74 years, respectively. The narrowing of the gap in 2024-2025 is primarily due to coordinated adjustments on both the asset and liability sides. On the asset side, the duration of cash inflows for sample companies increased by 0.26 years to 7.82 years, mainly due to widespread increases in allocations to long-duration government bonds, reductions in credit asset exposure, and selective increases in equity assets to boost long-term income elasticity, collectively extending asset duration. On the liability side, adjustments were more significant, with the duration of cash outflows decreasing by 3.56 years to 16.21 years, becoming the key driver of the gap's reduction. Companies are promoting the transition to floating-income products to reduce rigid liability costs, adjusting product term structures to shorten liability duration, and dynamically controlling new business pricing to manage costs, all of which optimize the liability duration structure. Overall, the extended asset duration and shortened liability duration jointly narrowed the gap, with liability duration management proving more effective.

Leading insurers generally maintain a duration gap of around -3 years. In 2025, China Life's duration gap is notably low at -1.5 years. The gaps for China Life, CPIC, Ping An, and PICC Life are narrowing. Overall, due to continuous allocations to long-duration bonds, the asset-liability matching of leading insurers is relatively stable, with the duration gap showing a sustained narrowing trend. CPIC's "barbell strategy" is a typical example of this trend: one end uses long-duration government bonds as a cornerstone to extend asset duration, while the other end uses equity assets to enhance long-term income elasticity, with a reduction in credit asset exposure in the middle. However, these companies also face dual challenges from reinvestment pressure under the low-interest-rate environment and volatility in the equity market.

Risk Warning: Risk of deviation from interest rate assumptions; risk of derivative instruments underperforming expectations; risk of liability structure adjustments; differences in data disclosure and standards; risk of delayed research report updates.