Against the backdrop of persistently declining global interest rates and compressed returns on traditional fixed-income assets, insurance capital is accelerating its asset allocation transformation.

Insurance asset-backed securities (referred to as "insurance ABS"), primarily issued by insurance asset management firms, are gaining traction as a core tool for insurers to navigate market cycles, thanks to their dual advantages of yield and duration. In the first three quarters of 2025, registered insurance ABS issuance reached 274.58 billion yuan, marking a 25.1% year-on-year increase.

**Breaking Through Low-Rate Constraints** In November 2025, the 1-year LPR dropped to 3.0%, while the 5-year and above LPR stood at 3.5%. With the 10-year government bond yield falling below 1.75%, insurers face unprecedented pressure to match returns amid dwindling bond yields and volatile equity markets.

Insurance capital is characterized by long liability duration, rigid cost structures, and conservative risk appetites. Historically reliant on high-grade bonds and deposit-like assets, insurers now find traditional fixed-income returns insufficient to cover policy costs, exacerbating "spread loss" risks.

The low-rate environment is reshaping insurers' "fixed-income plus" strategies. Instead of solely depending on coupon income, insurers are adopting multi-strategy approaches—incorporating alternative assets, derivatives, and sector rotation—to seek excess returns while managing volatility.

Guosen Securities notes that insurance asset managers are addressing yield pressures through three key measures: extending duration by allocating to ultra-long-term bonds and high-grade non-standard assets; increasing exposure to high-dividend equities to offset fixed-income shortfalls; and expanding alternative investments, including gold, private equity (PE), venture capital (VC), hedge funds, and core real estate, to enhance returns and diversify risks.

**Insurance ABS Surges with Matthew Effect** Insurance ABS is gaining prominence in insurers' diversified portfolios. These securities, issued by insurance asset managers as trustees and backed by cash flows from underlying assets, target qualified institutional investors.

Since the shift from a registration-based to a filing-based system in September 2021, insurance ABS has entered a rapid growth phase. In the first three quarters of 2025, 66 insurance ABS products were registered, totaling 274.58 billion yuan—a 25.1% year-on-year increase. Monthly data shows accelerating momentum, with October issuance hitting 41.53 billion yuan across eight products.

Market participation has also risen, with 10 out of 15 insurance asset managers registering over 10 billion yuan in issuance. Minsheng Tonghui Asset Management led in product volume (12 issuances), while Everbright Yongming Asset Management topped in scale (60.55 billion yuan), highlighting industry consolidation.

**Yield and Duration Advantages** Insurance ABS appeals to insurers due to its stable cash flows and long maturities, which align well with insurers' long-term liabilities. As bond yields decline and equities fluctuate, ABS offers a balanced risk-return profile.

Long Ge, Deputy Director of the Innovation and Risk Management Research Center at the University of International Business and Economics, notes that insurance ABS growth is driven by yield demands in a low-rate environment and the natural fit between ABS characteristics and insurers' liability structures. Diversified underlying assets further mitigate risks.

Long Ge views insurance ABS as both a "stabilizer" and "yield enhancer" in insurers' portfolios. Combined with REITs and bonds, it can form a multi-asset strategy balancing cash flow stability and capital appreciation.

Policy support also fosters ABS investment. The "High-Quality Development Plan for Technology Finance in Banking and Insurance" (March 2025) explicitly encourages insurers to invest in securitized products like ABS.

**Impact on Policyholders** Though institutional-focused, insurance ABS indirectly affects policyholders by influencing insurers' investment returns, which determine policy dividends and universal account yields.

For instance, when insurers allocate to high-yield ABS, the stable cash flows help meet policyholder payout obligations. Conversely, poor investment performance may reduce dividend capacity. Thus, prudent ABS investments underpin insurers' ability to honor long-term commitments and potentially deliver above-expectation returns.

**From Transitional Tool to Core Ballast** Industry experts predict ABS could double its share in insurers' alternative investments—from ~12% to 25%—within three years. Long Ge asserts this trend is sustainable, as ABS evolves beyond cyclical use into a long-term "ballast," with underlying assets expanding into carbon credits and data rights.

China’s securitization market operates under a "dual-track" system, with insurance ABS coexisting alongside exchange-traded ABS. While insurance asset managers seek exchange ABS licenses, pilot expansions remain pending.

Long Ge emphasizes that insurers' transformation hinges not on waiting for rate cycles but on building integrated "payment + service + investment" ecosystems. Winning firms will combine cost, investment, scale, and tech-driven operational efficiencies.

Looking ahead, insurers' asset allocation will continue evolving with interest rate trends. Guotai Haitong Securities highlights 2026 as a pivotal year for asset management, where active management capabilities will grow crucial amid falling long-term rates and narrowing credit spreads. Diversified equity allocations are expected to emerge as a key investment shift.

*Note: "Insurance ABS" refers specifically to asset-backed plans registered and issued by insurance asset management firms with the China Insurance Asset Registration and Trading System, distinct from exchange-traded ABS.*