Guotai Haitong Securities Co., Ltd. has released a research report indicating that the National Financial Regulatory Administration (NFRA) has officially issued the "Measures for the Management of Asset-Liability Management of Insurance Companies." This move strengthens the focus on asset-liability matching, which is expected to guide insurance companies toward balanced development in both assets and liabilities, thereby enhancing profit stability.

Currently, the PEV valuation of insurance stocks still reflects a relatively pessimistic outlook on investment returns. The brokerage believes the core reason lies in the high uncertainty of ROE caused by asset-liability mismatches. The implementation of the "Asset-Liability Management Measures" is expected to profoundly impact the insurance business development and asset allocation behavior of insurers, from governance systems to operational levels. Effective asset-liability matching management is conducive to improving the stability of insurers' profitability, thus providing strong support for valuation recovery. The firm maintains an "Overweight" rating.

Key Points from Guotai Haitong Securities:

Event: On August 21, the NFRA issued the "Measures for the Management of Asset-Liability Management of Insurance Companies" (the "Measures"), effective January 1, 2027, with a three-year transition period for insurers that fail to meet the standards. The release of the Measures is intended to guide the establishment of an effective asset-liability management system for insurance companies.

1) The 2024 edition of the "National Ten Provisions" for insurance explicitly proposed "strengthening the linkage supervision of assets and liabilities." The Measures are an important initiative to implement the spirit of key State Council documents and improve the prudent regulatory system.

2) In response to the low-interest-rate market environment, the Measures promote the improvement of asset-liability management frameworks, policies, and procedures among insurance companies.

3) Against the backdrop of the full implementation of new accounting standards in the industry, the impact of interest rate fluctuations on both assets and liabilities has significantly increased, raising the bar for asset-liability management.

The Measures reinforce the orientation toward asset-liability matching, further optimizing relevant indicators compared to the draft for comments.

1) Regarding regulatory and monitoring indicators (core changes): The interest rate risk hedging ratio replaces the duration gap indicator (interest rate risk hedging ratio = interest rate sensitivity of cash flow inflows / interest rate sensitivity of cash flow outflows), which more directly reflects the degree of hedging against interest rate risks in assets and liabilities. The effective duration gap has been downgraded to a monitoring indicator for life insurance for early warning purposes and is no longer a rigid compliance red line. The liquidity coverage ratio removes the stress scenario restriction. The calculation methodologies for the sinking fund coverage ratio, comprehensive investment return coverage ratio, and liquidity coverage ratio have been refined.

2) In terms of asset-liability management objectives and principles: The definition of "duration structure matching" has been revised to a reasonable matching of asset-liability cash flows over a longer-term structure. The order of the three principles for the asset side has been adjusted to "safety, liquidity, and profitability."

3) Regarding governance structure: The requirement for an asset-liability management department has been changed from "establish" to "establish or designate," providing moderate flexibility to the rigid requirement of an independent department.

4) In business planning and product development: There is a requirement to consider changes in both asset and liability conditions.

5) Regarding entrusted investment relationships: It is clarified that the principal must provide the trustee with necessary information such as duration targets, investment return requirements, and expected changes in cash flows.

6) Implementation requirements: The planned effective date is January 1, 2027. The first quarterly and annual reports are for the fourth quarter of 2026 and the annual report for 2026, respectively. Insurance companies that fail to meet the regulatory indicators after the implementation of the Measures are allowed a three-year transition period and must report to the regulatory authorities by the end of March 2027.

Guiding balanced asset-liability development is expected to benefit leading insurers more. On the liability side, the Measures strengthen asset-liability linkage requirements, guiding reasonable cost control. On the asset side, the Measures emphasize interest rate risk management, supporting increased allocation to high-safety and high-liquidity assets, and focusing on cost-yield matching. It is expected that leading insurers whose operational directions align with the regulatory requirements for asset-liability matching will benefit more.

Risk warnings: downward trend in long-term interest rates; volatility in the equity market; liability cost improvements falling short of expectations.