Demonstration of interest rate cut to 3.5%: The life insurance industry "fights back against internal competition" with renewed efforts

◎ Reporter: Han Songhui

On March 27, China Securities Journal’s Shanghai office exclusively learned from relevant channels that the life insurance industry has reached a consensus on lowering the illustrative interest rate for participating insurance. It is planned to be further reduced to 3.5% in order to prevent mis-selling and risks of negative spread loss.

The 2025 annual reports recently intensively disclosed by listed insurance companies show that in 2025, life insurance companies generally stepped up efforts in participating insurance. The share of participating insurance business increased significantly, and they generally said they would iterate products and optimize product structure. However, the reporter learned from industry sources that, because some life insurance companies encountered issues such as implicit “principal-guarantee” (the so-called “just-like-guarantee”) and mis-selling during the early development of participating insurance, they have begun to proactively reduce their participating insurance business.

Lowering the Illustrative Interest Rate

The illustrative interest rate is the interest rate level used by insurance companies when illustrating future benefits while selling participating insurance products. Industry insiders told the reporter that the current highest illustrative interest rate for participating insurance is 3.9%, and this time it is proposed to be lowered to 3.5%.

“Due to the bond market interest rates remaining at low levels and fluctuating for the long term, and the equity market experiencing greater volatility, in order to match the current level of market investment returns and guide insurance consumers to form reasonable expectations, the illustrative interest rate must indeed be further lowered.” An industry insider told the reporter.

An illustrative interest rate that is too high is likely to lead to mis-selling and pressure from implicit “principal-guarantee” (the so-called “just-like-guarantee”).

Industry insiders explained that the illustrative interest rate is neither a guaranteed interest rate nor the actual interest rate level of an insurance product. But in actual implementation, some companies set the illustrative interest rate too high, which gives consumers unreasonable expectations and creates pressure from implicit “principal-guarantee” (the so-called “just-like-guarantee”) for insurance companies, thereby causing the industry to accumulate risks of negative spread loss.

To understand the real interest rate level, consumers should focus on the dividend realization rate. The so-called dividend realization rate (actual dividends / promised dividends) reflects an insurance company’s actual dividend level. The reporter learned from industry sources that, based on the dividend realization rates for 2025 disclosed for nearly 3,000 participating insurance products, the differences are very large: the highest reaches 233%, while the lowest is 12.5%.

The reporter learned that, within the industry, there is a consensus on prudently determining the dividend level—no longer arbitrarily raising dividends and “cannibalizing each other” within the industry—and instead ensuring that the dividend realization rate remains at a relatively stable level. This is conducive both to reflecting insurance companies’ true investment performance and to guiding insurance consumers to form reasonable expectations, thereby reducing mis-selling.

Transition to a “low guarantee + high floating” model

According to relevant statistics from the China Association of Insurance Industry, in 2025, the original premium income of participating insurance reached RMB 904.2 billion, up 18.06% year over year, making it the fastest-growing business in the life insurance industry.

The share of participating insurance among listed insurance companies has been rising rapidly. For example: China Life’s participating insurance accounted for nearly 60% of the first-year single premium received through the individual insurance channel, becoming an important support for new premium business; China Taiping’s 2025 new policy premium scale for participating-type insurance saw a sharp increase year over year, and within new policy first premiums, the share of participating insurance rose to 50.0%; Ping An Life’s participating insurance premium across all channels as a proportion of long-term insurance premiums is already close to 90%.

Multiple management teams of listed insurance companies said that as the share of participating insurance business increases, the sensitivity of the company’s new business value to interest rate changes has dropped significantly, and the results of the transition have become evident. In the future, the company will continue to enrich floating-return products such as participating-type products, and promote product iteration and upgrades as well as optimization of product structure.

However, some companies, due to pressure from implicit “principal-guarantee” (the so-called “just-like-guarantee”) and other factors, have begun to proactively reduce the share of participating insurance business. The reporter learned from industry sources that, during the business transformation process, some insurance companies created pressure from implicit “principal-guarantee” (the so-called “just-like-guarantee”) due to setting higher illustrative interest rates and the presence of mis-selling. Out of risk prevention considerations, they have proactively reduced the share of participating insurance business.

China Renaissance Securities recently published a research report stating that participating insurance is expected to continue to occupy a mainstream position in the future and may move from a “high guarantee + low floating” model to a “low guarantee + high floating” model.

Industry insiders believe that this reduction in the illustrative interest rate for participating insurance is a proactive adjustment by the life insurance industry based on risk prevention considerations. Participating insurance is expected to be able to better adapt to the low-interest-rate environment in the future with superior business models.

(Editor: Qian Xiaorui)

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