Orient Securities Company Limited has released a research report suggesting that listed insurance companies still possess significant theoretical headroom to increase their equity asset allocations relative to regulatory limits. The ongoing refinement of the institutional framework for long-term capital market participation is expected to bolster market focus on insurers' capabilities for equity allocation and the flexibility of their asset sides. Currently, with insurers' liability costs continuing to decline and long-term assessment mechanisms gradually improving, the value of allocating to equity assets—particularly those with high dividends, low valuations, and stable cash flows—is poised to rise further. The report recommends focusing on leading insurers with steady liability-side value growth, sufficient solvency margins, considerable room for equity allocation, and strong investment capabilities.

Key Points from the Report

Substantial Theoretical Headroom Remains for Insurers' Equity Allocations

Based on projections for total assets, equity asset scale, and comprehensive solvency adequacy ratios for listed insurers by the end of 2025, the seven major listed insurers currently hold approximately 5.6 trillion yuan in combined equity assets, representing about 18.0% of total assets. This leaves a theoretical allocation headroom of roughly 4,076.6 billion yuan before reaching regulatory upper limits. Among these, Ping An Insurance (Group) Company of China, Ltd., China Pacific Insurance (Group) Co., Ltd., China Life Insurance Company Limited, and China Taiping Insurance Holdings Company Ltd. show relatively higher theoretical allocation capacities, estimated at approximately 2,421.7 billion, 779.9 billion, 293.2 billion, and 281.6 billion yuan, respectively.

Solvency and Equity Limits Remain in Favorable Territory, Supporting Allocation Capacity

By the end of 2025, the comprehensive solvency adequacy ratios of major listed insurers are generally above 150%. For most companies, this corresponds to an equity allocation cap of 30% of total assets. China Pacific Insurance (Group) Co., Ltd., due to its higher solvency ratio, faces an equity allocation limit of up to 40%. In terms of actual allocations, the proportion of stocks and funds held by listed insurers in 2025 has broadly increased. The ratios of stocks and funds to total assets for China Life Insurance Company Limited, Ping An Insurance (Group) Company of China, Ltd., China Pacific Insurance (Group) Co., Ltd., New China Life Insurance Co., Ltd., The People's Insurance Company (Group) of China Limited, China Taiping Insurance Holdings Company Ltd., and Sunshine Insurance Group Company Limited reached 17.0%, 20.4%, 13.8%, 21.2%, 13.3%, 16.6%, and 14.9%, respectively, indicating a notable upward shift in the central tendency of equity asset allocation compared to 2023-2024.

Framework for Long-Term Capital Inflows Improves, Suggesting a Gradual, Prudent Approach to Equity Increases

The steady growth in the utilization balance of insurance funds provides a scale foundation for equity asset allocation. Concurrently, reforms such as long-term investment pilots, adjustments to equity allocation limits, and the optimization of long-cycle assessment mechanisms help mitigate constraints from short-term profit volatility, guiding insurance funds towards more stable equity allocations. However, from an asset-liability matching perspective, bonds remain the core asset class for insurance capital. Increasing equity allocations must still balance considerations of solvency, accounting classification, profit volatility, the supply of dividend-paying assets, and overall capital market conditions. It is anticipated that future equity allocations by insurance funds will not simply aim for maximum permissible proportions but will lean more towards assets characterized by high dividends, low valuations, stable cash flows, and those aligned with the long-term downtrend in liability costs.

Risk Factors to Consider

Potential risks include a sharper-than-expected decline in long-term interest rates, increased volatility in capital markets, a slower-than-expected pace of equity allocation increases, a reduction in solvency adequacy ratios affecting allocation capacity, weaker-than-anticipated liability-side sales and new business value growth for insurers, changes in regulatory policies, and discrepancies between the report's calculation methodology and actual regulatory standards.