According to analysis from DFZQ, while the insurance sector faces short-term pressure from investment volatility, its medium to long-term investment appeal is becoming more pronounced, suggesting potential opportunities following market adjustments. Focus is recommended on leading insurers demonstrating strong early-year performance, advanced transition in participating insurance products, and stable channel operations. Companies with greater flexibility on the asset side, higher proportions of investments measured at Other Comprehensive Income (OCI), and superior duration matching are positioned for stronger valuation recovery and earnings resilience.
DFZQ's key viewpoints are as follows: The benchmark assumed interest rate for the first quarter of 2026 was studied at 1.93%, marking its first increase since public disclosure began. On April 24, 2026, a committee of the Insurance Association of China proposed the current benchmark rate for standard life insurance products, up 4 basis points from 1.89% in January 2026. Since the implementation of the dynamic adjustment mechanism in 2025, the quarterly benchmark rates have followed a sequence of 2.34%, 2.13%, 1.99%, 1.90%, 1.89%, and finally 1.93%, with sequential changes of -0.21, -0.14, -0.09, -0.01, and +0.04 percentage points respectively. This first sequential increase indicates that marginal downward pressure on liability-side pricing benchmarks has eased following stabilization of long-term interest rates at lower levels.
In the short term, room for further reduction of the maximum assumed interest rate is limited, and product transition disruptions in 2026 are expected to be milder than in 2025. Under the dynamic adjustment mechanism, if the maximum assumed rate for in-force standard life products exceeds the study value by 25 basis points or more for two consecutive quarters, insurers must lower the cap for new products. The current upper limit is 2.0%, with a trigger threshold of 1.75%. The latest study value of 1.93% is 18 basis points above this threshold, significantly reducing immediate pressure for another cap reduction. Following the September 1, 2025 adjustments that lowered caps for standard, participating, and universal life products to 2.0%, 1.75%, and 1.0% respectively, liability-side operations in 2026 are more likely to stabilize, making a repeat of the 2025 sales surge from product discontinuations unlikely.
Over the medium to long term, new business liability costs continue to decline, contributing to a gradual improvement in overall liability costs. Over the past three years, pricing rates for life insurance products have been consistently lowered. The cap for standard products dropped from 3.5% to 2.0%, for participating products to 1.75%, and the maximum guaranteed rate for universal life products to 1.0%. As the guaranteed returns on newly issued policies are significantly lower than those on older, high-rate policies, the cost of new liabilities will remain below that of existing liabilities. This differential will gradually dilute the overall liability cost base as new business accumulates. Coupled with an increasing share of floating-return products like participating insurance, the rigid cost constraints on insurers' liability sides are expected to continue decreasing, systematically alleviating pressures from asset-liability matching and spread loss risks. Although reinvestment returns remain constrained in a low-rate environment, the stabilization and increase of the study value help anchor market expectations regarding spread loss risks.
The investment recommendation is to emphasize insurance valuation recovery driven jointly by stabilizing interest rates and liability cost reductions. On the liability side, demand for savings-oriented insurance products remains resilient. Leading insurers show steady recovery in their agent channels, while bancassurance channels are contributing increasing value post-regulatory reforms. The transition towards participating insurance is optimizing product structures and liability costs, supporting a foundation for Net Book Value (NBV) growth. On the asset side, stabilization of long-term rates at lower levels helps mitigate pressure from fixed-income reinvestment, and recovery in equity markets coupled with allocations to high-dividend assets are expected to enhance overall investment returns. With insurance sector valuations still at historically low levels, the first increase in the assumed interest rate benchmark helps alleviate market concerns about persistent liability-side price cuts and widening spread losses. Focus is advised on leading insurers with clearer reform outcomes on the liability side, stronger asset-side flexibility, and stable dividend payouts.
Related companies include China Pacific Insurance, People's Insurance Company of China, New China Life Insurance, and China Life Insurance. Risks include potential policy deviations, increased capital market volatility, slower-than-expected growth in household wealth, sharper-than-expected declines in long-term interest rates, and setbacks in insurance company reforms.