Orient Securities Company Limited released a research report stating that the insurance sector's adjustment in the first quarter of 2026 has largely reflected pressures from investment volatility and profit divergence, while the improving operational trend persists. For life insurance, the major life insurers continue to post robust growth in New Business Value (NBV), with optimized new business structures driven by strong growth in regular-premium policies and a reduction in single-premium policies, sustaining value growth on the liability side. In property insurance, leading property insurers have seen continuous improvement in their Combined Operating Ratio (COR), maintaining steady enhancement in underwriting profitability. On the investment side, volatility in the equity market during Q1 pressured fair value change gains and losses. Since April, the recovery in the equity market and a slight decline in long-term interest rates have led to the accumulation of unrealized gains on bonds. Investment performance in Q2 2026 is expected to improve significantly compared to Q1, driving a substantial recovery in profit performance. The sector's valuation remains low, with low valuation, liability-side value realization, and asset-side recovery collectively forming the investment thesis for the sector. It is recommended to actively seize the opportunity for valuation recovery in the insurance sector.

Orient Securities Company Limited's main views are as follows: Q1 2026 performance disturbances have materialized, with profit divergence mainly stemming from investment volatility, while operational quality continues to improve. In Q1 2026, the operating revenue of listed insurers generally declined year-on-year, and net profit attributable to shareholders showed divergence. China Life Insurance Company Limited / China Pacific Insurance (Group) Co., Ltd. / New China Life Insurance Co., Ltd. / The People's Insurance Company (Group) of China Limited reported net profit attributable to shareholders of -32.3% / +4.3% / +10.5% / -31.4% year-on-year, respectively. Profit differences primarily arose from pressures on fair value change gains and losses due to equity market volatility and divergent investment performance, while insurance service results remained a positive contributor. Since April, equity market recovery and a slight decline in long-term interest rates have led to the accumulation of unrealized gains on bonds. Following the resolution of investment-side disturbances in the Q1 reports, factors suppressing sector valuation have begun to ease.

Life insurance NBV continues to grow strongly, with regular-premium and participating insurance transformation supporting liability-side value improvement. In Q1 2026, China Life Insurance Company Limited / Ping An Life & Health Insurance Company of China, Ltd. / China Pacific Life Insurance Co., Ltd. / New China Life Insurance Co., Ltd. / PICC Life Insurance Company Limited reported NBV growth of +75.5% / +20.8% / +9.6% / +24.9% / +21.0% year-on-year, respectively, all achieving positive growth. In terms of new business structure, China Life Insurance Company Limited / China Pacific Life Insurance Co., Ltd. / New China Life Insurance Co., Ltd. / PICC Life Insurance Company Limited / PICC Health Insurance Company Limited reported new regular-premium policy premiums of +41.4% / +41.4% / +25.6% / +84.3% / +28.0% year-on-year, respectively, with growth rates for regular-premium policies significantly higher than the overall new business growth rates for most companies. The reduction in single-premium policies, increase in regular-premium policies, and transformation towards participating insurance collectively drive the optimization of new business structures. New business liability costs continue to decline, ensuring the sustainability of liability-side value growth.

Property insurance scale growth diverges, with COR continuing to improve. In Q1 2026, the Combined Operating Ratios for PICC Property and Casualty Company Limited / Ping An Property & Casualty Insurance Company of China, Ltd. / China Pacific Property Insurance Co., Ltd. were 94.2% / 95.8% / 96.4%, improving by 0.3 percentage points / 0.8 percentage points / 1.0 percentage points year-on-year, respectively. On the premium side, auto insurance remained generally stable, while non-auto insurance performance diverged. On the underwriting side, weaker pressure from catastrophe claims payouts, optimized business structures, expense control, and non-auto insurance governance jointly contributed to COR improvement.

Recommendations: Focus on leading insurers with sustained liability-side value realization, stable investment allocation structures, or those benefiting from equity market recovery on the investment side. Related targets: Ping An Insurance (Group) Company of China, Ltd. (601318.SH, Buy), China Pacific Insurance (Group) Co., Ltd. (601601.SH, Not Rated), The People's Insurance Company (Group) of China Limited (601319.SH, Not Rated), New China Life Insurance Co., Ltd. (601336.SH, Not Rated), China Life Insurance Company Limited (601628.SH, Not Rated).

Risk warnings: Long-term interest rates decline more than expected; significant volatility in equity markets; life insurance channel reforms fall short of expectations; household income falls short of expectations; changes in regulatory policies; product structure transformation falls short of expectations.