Western Securities: Insurance will be the most growing direction in industrial structural transformation, and there is plenty of momentum for valuation repair

The Zhitong Finance App learned that Western Securities released a research report saying that insurance will be the most growing direction for the financial industry in the transformation of the industrial structure. Leading insurers have outstanding investment value due to scale effects, brand accumulation, and customer stickiness. Looking at industry fundamentals, the average NBV growth rate of listed insurers in the first three quarters of 2025 was close to 45%. Profit improvements brought about by cost optimization have clearly been evident. Combined with the positive effects of economic recovery, policy support, and RMB appreciation, there is plenty of momentum for current valuation restoration. At the same time, the bank needs to pay close attention to the pace of economic recovery. Once the aggregate policy is further strengthened and the inflation trend strengthens, then insurance valuation repair will enter a strong cycle.

The main views of Western Securities are as follows:

Insurance stock review in 2025: Reviewing insurance stock trends in the first 11 months of 2025. The asset-side performance is the core driver. Specifically, it can be divided into five stages. Phase 1 (1/2-3/19) is an increase in interest rates and the trend of insurance stocks leveled off under stock market shocks; stage 2 (3/20-4/7) is a sharp fluctuation in the market due to tense Sino-US relations; stage 3 (4/8-8/25) is policy support+increased market sentiment to drive the rise in the stock market. Improved insurance policies drive up stock prices; phase 4 (8/26-9/24) performance expectations Due to concerns about landing+high base, the insurance sector's phased adjustments outperformed the market; the strong investment side of the Phase 5 (9/25-11/28) three-quarter report led to the strengthening of insurance stocks. Differences in the flexibility of short-term performance expectations have led to differences in individual stock performance.

The essence of investment income contribution is interest spread income, which is the core profit pillar of insurance companies. It mainly relies on two core variables: one is the steady increase in asset size (AUM), and the other is the continuous improvement of interest spreads. Insurers need to achieve steady return on investment by continuously obtaining low cost and stable cash inflows with efficient asset allocation strategies.

On the AUM side, in the context of normalization of low interest rates and residents' demand for “misappropriation”, the characteristic advantages of “guarantee+floating” dividend insurance are prominent. Leading insurers have core competitiveness in terms of investment capacity, channel expansion, and product reserves, which is expected to drive the expansion of new premiums under the impetus of dividend insurance. In terms of operating cash flow, listed insurers have entered a steady growth channel, and cash flow resilience continues to increase, enhancing the certainty of large-scale growth. In terms of interest spreads, the upward trend in the equity market is clear. Combined with strong support for the capital market, insurance companies' equity investment is expected to continue to expand and increase investment returns. In a low interest rate environment, there is a high pressure to reallocate time deposits, bonds, etc. at maturity. Non-standard yields continue to decline, and non-standard tenders are expected to contribute to equity growth. The superimposed cost side is driven by the continuous deepening of the integration of reporting and the reduction of scheduled interest rates, personal insurance leveled the continuous improvement in yield and the decline in the comprehensive financial insurance cost ratio, and jointly promoted the improvement of interest spreads in the industry.

Risk warning: Risk of equity market fluctuations, risk of falling interest rates, risk of transformation falling short of expectations.