Underappreciated Insurance Capital
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- March 24, 2025
On January 16, 2024, China Pacific Insurance co. announced its impressive premiums on the Hong Kong Stock Exchange, reporting a cumulative original insurance premium income of 238.82 billion Chinese Yuan for its subsidiary, Pacific Life Insurance, which marks a 2.4% increase year-on-yearSimilarly, its non-life insurance subsidiary's cumulative original insurance premium income reached 203.25 billion Chinese Yuan, reflecting a significant 6.8% year-on-year growth.
On the same day, China Life Insurance Group revealed that its consolidated revenue has impressively surpassed 1.1 trillion Yuan, with consolidated premium income exceeding 820 billion YuanThis growth stands as a testament to the flourishing insurance sector in China.
While Wall Street experiences a flourishing bull market frequently leading to enhanced valuations of brokerage firms such as JPMorgan Chase, with a market cap over 600 billion dollars, the insurance sector looks up to giants like Berkshire Hathaway, whose market value approaches one trillion dollars, highlighting a diverse yet significant landscape.
Interestingly, the influence of insurance companies on the A-share market has often been overlookedCurrently, the top two holders in the A-share market comprise industrial capital and individual investorsHowever, the shifting nature of these investments introduces limitations on industrial capital, while individual investor stakes are highly fragmentedIn fact, the true drivers shaping the A-share market trajectory are the institutionally-based investors, whose scale has expanded notably in recent years and whose capital is often centralized.
By the end of August 2024, institutional investors cumulatively held an astonishing 14.5 trillion Yuan worth of A-share circulation market valueThis figure represents a greater than twofold increase since early 2019, showcasing their growing prowess, with their holdings occupying around 22.2% of the total A-share market value.
Among these institutional investors, insurance funds rank as one of the largest players, following public offerings and foreign investments
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By the second quarter of 2024, insurance institutions held about 2.08 trillion Yuan in A-share circulating market value, constituting approximately 3.15%—a figure that surpasses the total investment volumes of both pension funds and securities firms.
Beyond their substantial holdings, insurance investments stand out due to their remarkable stabilityThis feature becomes especially significant in less favorable market conditions, exhibiting resilience that is often lacking in other institutions.
In Q2 of 2024, insurance institutions recorded a quarter-on-quarter growth rate of 3.61% in their market holdings, with a year-on-year growth rate of 6.66%, establishing them as the fastest-growing institutional investors in terms of holding value.
On the contrary, foreign investments have been vulnerable to international market influences, while public offerings face redemption pressures from clients, leading to comparatively lower stockholding stability during downturnsThe second quarter of 2024 saw foreign investors experiencing a quarter-on-quarter decline in stockholdings of 3.08%, coupled with a year-on-year decrease of 18.79%. Public offerings also displayed negative growth, recording a 4.29% decrease quarterly and 9.93% annually, indicating a troubling trend of capital flight within these two major institutional investor groups.
Other institutional investors showcase even more pronounced signs of capital outflows, highlighting a stark contrast with the stability of insurance capitalFor instance, securities institutions reported a quarter-on-quarter decline in circulating stockholdings by as much as 30.07%, with a year-on-year contraction of 6.46%. Similarly, pension funds showcased a quarterly decline of 5.02%, along with a slight annual dip of 0.58%, while private equity firms witnessed monumental declines reflecting a 30.05% quarterly drop and 4.75% annually.
To aid the market recovery, policies have increasingly spotlighted insurance investments over the past few years
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In nearly every essential document referencing the stock market in 2024, insurance funds have occupied an extraordinarily prominent position.
During a critical meeting that heralded the market revival on September 24, the governor of the People's Bank of China announced plans to create an innovative monetary policy that allows financial institutions such as securities, insurance, and funds to utilize their bonds and stock ETFs as collateral for high-liquid assets like government bonds from the central bankMoreover, these liquidated assets are permitted to re-enter the market, notably for stock investments, emphasizing a targeted approach to bolster stock market stability.
In terms of financial capacity, the potential influence of insurance capital on the stock market is undeniably massiveData from the Financial Regulatory Authority reveals that as of mid-2024, the balance of funds utilized in the Chinese insurance sector had surged to 30.87 trillion Yuan, marking a 10.98% year-on-year growthIn stark contrast, the total assets within the securities industry only reached 11.75 trillion Yuan, representing less than half of the accessible insurance fund balance.
According to regulatory stipulations, insurance capital investment in the stock market is capped at 45%. Currently, the total investment made by insurance capital in stocks and stock funds is approximately 3.3 trillion Yuan, which accounts for merely around 10% of their total available balance—leaving them with an ample 35% headroom to maximize investment limits.
Even a mere additional 10% influx of capital would generate more than 3 trillion Yuan in new funds from insurance resources, likely catalyzing a notable uplift in stock performance while concurrently enriching their investment outcomesThis potentiated boost can yield immense benefits for the insurance firms themselves in terms of profitability.
Encouraged by favorable policy changes and the bullish market potential, major listed insurance firms are increasingly eager to engage in market activities
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