CITIC Securities: Expect the insurance sector adjustment to end; recommend actively seizing major opportunities

CITIC Securities research notes that the insurance sector is down 15% since the beginning of the year, mainly due to external factors, and that 1x PB is a reliable indicator for positioning. The upward movement in the fundamentals cycle has already been established for 2025, and the trend has been reinforced since Q1 2026, including continued lowering of liability costs on the liability side, more options on the asset side, and strict regulation against “internal competition/motoring” that promotes concentration of market share, etc. At the same time, we expect the rollout of policies related to the “15th Five-Year Plan for the Fifth Five-Year” (“十五五”) to drive coordinated development between government medical insurance (医保) and commercial insurance (商保), achieving win-win growth for patients, hospitals, doctors, innovative drugs, and insurance companies. It is expected that the insurance sector’s adjustment will be over, so investors should actively seize the major opportunity period.

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Insurance | Expected insurance sector adjustment to be over; investors are advised to actively seize the major opportunity period

The insurance sector is down 15% since the beginning of the year, mainly due to external factors, and 1x PB is a reliable positioning indicator. The upward movement in the fundamentals cycle has already been established for 2025, and the trend has been reinforced since Q1 2026, including continued lowering of liability costs on the liability side, more options on the asset side, strict regulation against “internal competition/motoring” promoting market share concentration, etc. At the same time, we expect the rollout of policies related to the “15th Five-Year Plan for the Fifth Five-Year” (“十五五”) to drive coordinated development between government medical insurance (医保) and commercial insurance (商保), achieving win-win growth for patients, hospitals, doctors, innovative drugs, and insurance companies. It is expected that the insurance sector’s adjustment will be over, so investors should actively seize the major opportunity period.

▍ The insurance sector is down 15% since the beginning of the year, mainly due to external factors, and 1x PB is a reliable positioning indicator.

The reasons the insurance sector has fallen since the beginning of the year include: 1） State-owned fund selling, breaking the expectation of a one-way bull market; 2） The AI narrative shock in the U.S. hitting insurance intermediaries; 3） The Middle East war triggering expectations of global economic stagflation; 4） Insurance companies’ equity positions are relatively high, and the 2026 Q1 reports will be affected by the decline in the stock market. As a result of the above factors, valuations have returned to historically low percentiles. Measured by the A-share insurance index, over the past decade the overall PB range has been 1–3x, with a median of 1.75x. Currently, the static PB is 1.26x. Compared with the entire sector’s 10%–15% ROE range, valuations offer a relatively large margin of safety. Among them, for China Ping An (a weighted stock), the static PB is 1x, corresponding to ROE of 13%–15%. Historically, when allocating to China Ping An with a PB below 1x, valuations have been able to return to above 1x PB. The main reason is that insurance companies have already fully priced assets and liabilities using fair value, and the net asset value metric is a reliable measure and intervention point indicator.

▍ The upward fundamentals cycle has already been established for 2025, and since Q1 2026 the trend has been reinforced.

In 2025, the logic establishing the insurance sector’s upward cycle is: savings deposits migrating to insurance; insurance products shifting from traditional protection-type policies to dividend-paying policies; market share concentrating in large and mid-to-large insurance companies; interest rates bottoming out and the bond yield curve becoming steeper; combined with insurance companies actively entering the market and sharing in the bull market “feast.” Compared with 2025, we believe that since 2026 the long-cycle upward fundamentals trend has been further consolidated, including:

1） From the liability side, the market structure is becoming more concentrated, and liability costs are declining further. With large swings in the prices of major asset classes, expectations of a one-way bull market in equities and gold have been broken. Dividend-paying annuity-like fixed-income products (class of products mainly featuring fixed returns) have become the best choice for low-risk preference capital. Insurance companies further compress liability costs; some companies have launched dividend-paying policies with guaranteed interest rates of 1.5% and 1.25%. Meanwhile, regulators are also guiding insurance companies to further lower demonstration/illustrated interest rates. Regulators have investigated fee situations in the insurers’ bancassurance channels (bank–insurance channel) and issued more stringent regulatory documents, which implies that future market competition will be fairer. Fee spending is expected to decrease further, market share will become even more concentrated in the leading firms, and over the long term we believe the market will move toward a competitive landscape dominated by 3–5 leading companies.

2） From the investment side, stock and bond market corrections provide good opportunities for asset allocation by insurance companies. Since the second half of 2025, the bond market has been in a downward trend. Considering after-tax effects on interest income, including income tax on interest, 30-year government bonds, local government bonds, and ultra-long-term government bond yields have a relative advantage for allocation. Insurance companies are expected to obtain a risk-free long-term term spread. With the stock market correction this year, the market has already broken the one-way bull market expectation. Companies with high quality, stable profitability, and stable dividend growth have regained appeal. Overall, insurance funds are shifting from FVTPL equities to FVOCI. Although stock market volatility will to a certain extent affect insurers’ net profits in their 2026 Q1 reports, this is not the main factor determining an insurer’s investment value. Buying and selling insurance stocks based on profit changes over a quarterly horizon has a lower chance of success. Conversely, declines in profit driven by short-term factors will bring about good opportunities for long-term positioning.

3） At the same time, as strategic investors, participating in issuers’ directed share placements (targeted private placements) will be an important future path for insurance funds to broaden long-term returns. In Q1 2026, the CSRC issued the “Decision on Amending the ‘Opinions on the Application of Laws to Securities and Futures (No. 18)’ (Draft for Comments),” expanding the types of strategic investors. It clarifies that institutions investors across the board—national social security fund, basic pension insurance funds, enterprise (occupational) annuity funds, specific commercial insurance funds, public funds, bank wealth management products, and others—may serve as strategic investors. These investors are considered “patient capital” as a strategic resource to support issuers’ strategies. Under the rules, this category of investors will be defined as capital investors, while other industrial/real-economy investors will be defined as industry investors. At the same time, the CSRC also plans to specify minimum shareholding proportion requirements. It will adhere to the principle that strategic investors should hold a relatively large proportion of shares in the listed company, and further clarify that the subscription by strategic investors for shares of the listed company in this round will generally not be less than 5%. Depending on the shareholding proportion, they can participate in corporate governance of the listed company. This will greatly increase insurers’ enthusiasm for adding equity investments. In accounting, equity method treatment can be applied, which is not affected by share price fluctuations. At the same time, it will actively promote business synergies between listed companies and insurers—such as in fields including health and wellness, pensions, technology, and infrastructure.

▍ The “15th Five-Year Plan” outline highlights the position of commercial insurance. It is expected that corresponding policy support will be provided for commercial medical insurance, long-term care insurance, and personal pensions, etc., and it is also expected to drive coordinated development between government medical insurance (医保) and commercial insurance (商保), promoting the development of insurers’ ecosystems.

In the “15th Five-Year Plan” outline, it is proposed that efforts should be made to accelerate the development of a multi-level, multi-pillar pension insurance system; expand the coverage of enterprise annuity plans; improve personal pension policies; and vigorously develop commercial pension insurance. Establish and improve a multi-level medical security system; improve settlement for cross-regional treatment; and give full play to the supplementary protection role of commercial medical insurance. Encourage commercial insurers to expand mechanisms for developing innovative drugs and medical devices, and encourage commercial insurers to expand the payment scope for innovative drugs. Promote long-term care insurance and improve a unified ability assessment system for the elderly. According to the “Opinions on Accelerating the Establishment of a Long-Term Care Insurance System,” released in March 2026, the goal is to have the long-term care insurance system basically established in about three years. The overall premium rate for long-term care insurance will be controlled at around 0.3% (0.15% each for employers and individuals). This will provide basic living care and reimbursement for medical nursing costs for insured persons who have lost the ability to perform normal activities. This marks that long-term care insurance formally enters the nationwide basic system stage from the localized pilot stage since 2016.

▍ Risk factors:

Significant stock market volatility; long- and medium-term interest rates declining; growth in policy sales falling short of expectations.

▍ Investment strategy: It is expected that the insurance sector’s adjustment will be over. Investors should actively seize the major window of opportunity for industry development, and pay even more attention to leading companies under an oligopoly/leading-firm trend.

The insurance sector is down 15% since the beginning of the year, mainly due to external factors, and 1x PB is a reliable positioning indicator. The upward fundamentals cycle has already been established for 2025, and the trend has been reinforced since Q1 2026, including continued lowering of liability costs on the liability side, more options on the asset side, and strict regulation against “internal competition/motoring” in bancassurance (银保) channels that promotes market share concentration. At the same time, we expect the rollout of policies related to the “15th Five-Year Plan” to drive coordinated development between government medical insurance (医保) and commercial insurance (商保), achieving win-win growth for patients, hospitals, doctors, innovative drugs, and insurance companies. It is expected that the insurance sector’s adjustment will be over; investors should actively seize the major opportunity window for industry development, maintain a “Outperform the broad market” rating. Focus on leading insurance companies in an environment where the market structure becomes further concentrated. Also pay attention to companies that may benefit from commercial health insurance policy measures.

（Source: Securities Times Network）