Orient Securities has released a research report indicating that the fundamental landscape of the insurance industry is expected to sustain its improvement trajectory through the first half of 2026. The sector is witnessing consistent growth in new business value (NBV), contractual service margin (CSM), and embedded value, while the transition towards participating policies and enhanced channel fee management are contributing to a reduction in the liability costs associated with new business. Concurrently, the comprehensive cost ratios for property and casualty (P&C) insurance are improving, leading to a greater contribution from underwriting profits, and the improving equity market conditions are unlocking profit potential on the investment side.
While the third quarter of 2026 is poised to face a high comparison base for net profits, life insurance premium volumes, and NBV, the underlying trends of decreasing liability costs, value growth, and enhanced P&C underwriting profitability are expected to persist. In the current low-interest-rate environment, high dividend yields are providing valuation support, with life insurance value recovery and improved investment returns jointly underpinning a rise in the sector's valuation multiple. The report suggests continued focus on insurance companies that demonstrate stable operations on both the asset and liability sides, consistent improvement in liability costs, and strong shareholder returns.
Equity Market Improvements Release Profit Potential, High Dividends Solidify Valuation Floor
In the first half of 2026, the major listed insurers generally reported substantial year-on-year growth in net profit attributable to shareholders. China Life Insurance, Ping An Insurance, China Pacific Insurance, New China Life Insurance, PICC Group, China Taiping Insurance, and Sunshine Insurance saw increases of 228.6%, 36.1%, 10.4%, 54.0%, 38.5%, 90.4%, and 38.3%, respectively, with the investment side being the primary driver of earnings growth. The fair value changes of equity assets classified at fair value through profit or loss, along with increased gains from the disposal of stocks and funds, have allowed profits to fully capture the benefits of the equity market rally. The divergence in profit growth rates among insurers is largely attributed to differences in equity allocation, stock accounting classifications, and investment strategies.
Furthermore, listed insurers have been enhancing cash returns, with all five A-share listed insurers having implemented interim dividends. The allure of high dividend yields is strengthening the case for holding insurance stocks in a low-rate environment, and the combination of life insurance value recovery and improved investment returns supports a higher valuation band.
Life Insurance Growth Stabilizes, Shifting Focus to Value and Cost Reduction
During the first half of 2026, all major listed insurers recorded positive NBV growth. An increased proportion of regular premiums, a reduction in bancassurance single-premium products, and improved channel fee structures have led to divergent outcomes in new business scale and value. Simultaneously, CSM and embedded value have grown, indicating ongoing improvement in the accumulation of life insurance value.
The transition towards participating products has accelerated significantly; among six disclosing companies, the combined proportion of participating policy premiums rose from 19.1% in 2025 to 36.1% in the first half of 2026. This shift, coupled with lower predetermined interest rates and channel fee governance, has continued to lower the rigid liability costs of new business. On the distribution front, the agency channel is seeing improvements in core workforce numbers and per-capita productivity. In the bancassurance channel, the introduction of Document No. 65 is steering the focus away from scale competition towards value-driven operations, enhancing both the quality and sustainability of liability-side improvements.
P&C Premium Growth Moderates, Underwriting Profit Takes Centre Stage
In the first half of 2026, premium income for major listed P&C insurers mostly saw low single-digit growth. The auto insurance segment has essentially entered a phase of subdued growth, with non-auto insurance emerging as the primary source of incremental premiums. As the premium base for leading companies continues to expand, the marginal contribution of pursuing further scale growth to profitability is diminishing.
During this period, the comprehensive cost ratios for PICC P&C, Ping An P&C, CPIC P&C, Sunshine P&C, and China Taiping P&C stood at 94.5%, 95.1%, 95.0%, 98.7%, and 98.0%, respectively, all below the 100% threshold, signifying a clear improvement in underwriting profitability. The recent decline in comprehensive cost ratios has primarily stemmed from lower expense ratios resulting from the "unified reporting and pricing" initiative for auto insurance, channel fee governance, and the digitalization of sales. As the central loss ratio has not fallen correspondingly, the current profit enhancement more accurately reflects gains in operational efficiency and an improved business mix.
Net Investment Yields Under Pressure, Equities Play Larger Role for Returns
The annualized net investment yield for major insurers continued to decline in the first half of 2026. With newly issued bond yields lower than those on existing assets and the ongoing maturity of historically high-yield bonds and non-standard assets, reinvestment pressure on the asset side is expected to persist. However, the improving equity market has significantly boosted total investment returns, with most companies reporting considerably better total investment results compared to the same period last year.
The division of labor in asset allocation is becoming more defined: long-duration bonds are used to match liability cash flows and manage interest rate risk, high-dividend equities supplement recurring income, and other equity investments enhance the potential for total investment return volatility. Concurrently, the overall proportion of equities classified as fair value through other comprehensive income (FVOCI) has increased, with more long-term strategic holdings being placed in this category. This approach supports a higher equity allocation while mitigating the direct impact of short-term market fluctuations on the income statement, indicating a gradual adaptation of insurers' asset side to the prevailing low-interest-rate environment.
Risk Warnings
Potential risks include a more pronounced-than-expected decline in long-term interest rates, significant volatility in the equity market, life insurance reform outcomes falling short of expectations, delays in product structure transformation, an unexpected rise in P&C comprehensive cost ratios, lower-than-projected resident income levels, changes in regulatory policies, and risks associated with actuarial assumption adjustments.