CITIC Construction Investment: Both negative insurance premiums are expected to usher in resonance and improvements are expected to further increase the allocation of high-dividend OCI stocks

The Zhitong Finance App learned that CITIC Construction Investment released a research report saying that looking forward to 2027, both sides of the insurance industry are expected to experience resonance improvements, and are optimistic about medium- to long-term value valuation restoration and high dividend allocation investment opportunities in the insurance sector. In terms of life insurance, the NBV growth rate is expected to recover at a relatively low base. Flexibility depends on a good start and the pace of banking insurance channel repair. In terms of financial insurance, new energy vehicle insurance is expected to release profit flexibility, and comprehensive management is expected to further optimize non-vehicle insurance cost rates. On the asset side, the negative impact of falling interest rates on insurers is manageable. New orders with low debt costs are partially hedged, and expectations of low interest rates have been reflected to a large extent in sector valuations. In the context of a low interest rate environment and the implementation of new asset liability management regulations, insurance capital is expected to further increase the allocation of high-dividend OCI shares.

CITIC Construction Investment's main views are as follows:

Life insurance outlook

The NBV growth rate is expected to recover at a lower base. Flexibility depends on a good start and the pace of banking insurance channel repair. Interest rates scheduled for 2026 are stable, and banking insurance is disrupted by regulations and sales are under pressure. Overall, the 2027 base is manageable, and the NBV growth rate is expected to correct year-on-year. Structurally, increasing the share of dividend insurance optimizes the cost of rigid debt and consolidates long-term interest spreads, and the increase in long-term payout share is expected to stabilize NBVM. Demand for savings insurance has a solid foundation, and the reallocation of deposits at maturity combined with the release of long-term pension demand supports the growth of new savings insurance orders. The dividend transformation is in line with the new standards to smooth profit fluctuations, and regulation guides the industry to healthy competition; commercial health insurance ushered in policy dividends, widened the gap in non-medical insurance payments, broadened the profit margin, and enriched the profit structure.

Financial insurance outlook

Favorable policies continue to show, and underwriting profit growth is expected to continue. In the first three quarters of 2026, leading financial insurance companies have verified profit resilience in an environment with weak premiums. The disturbances of the 3Q26 disaster intensified, but the overall cost ratio of the industry remained within the profit range. Looking ahead to 2027, there are three main lines of improvement on the underwriting side: one is the further release of non-auto insurance comprehensive management dividends, which are expected to be further transmitted to the cost and compensation side; second, car insurance is used as a profit ballast stone. Although the incremental contribution of premiums is limited, under the premise of a stable competitive landscape, claims management and high-quality customer base management are expected to support the profit center; third, new energy vehicle insurance is gradually moving from high growth and loss to the profit cycle, with leading players continuing to have advantages in pricing, risk control and maintenance networks. Now, it is expected to open up profit elasticity.

Asset side

The negative impact of falling interest rates on insurers is manageable. New orders with low debt costs can be partially hedged, and expectations of low interest rates have been reflected to a large extent in sector valuations. In the context of the new asset management regulations and new accounting standards, high-dividend OCI stocks can not only contribute stable dividends to meet net investment return coverage requirements, but also reduce the impact of market capitalization fluctuations on current profits. The total allocation ratio of OCI shares of the seven 26H1 listed insurers is 5.6%, and OCI shares account for 43.4% of the shares. The allocation ratio is expected to increase further in the future. In terms of valuation, as of 11/7, the overall A-share listed insurer PEV was 0.47-0.63x. The sector's current valuation has fully taken into account the suppressing expectations of low interest rates.

risk analysis

Debt-side reforms have fallen short of expectations; long-term interest rates have declined sharply; the equity market has declined sharply; the recovery in residents' demand for insured products continues to fall far short of expectations; increased market competition has exceeded expectations; auto insurance payout rates have risen above expectations; and the impact of natural disaster risks has exceeded expectations.