Insurance Funds Increase Equity Allocation, Life Insurance Stocks Expected to See Q2 Earnings Recovery

Overview

This report focuses on the China insurance industry, analyzing insurance fund flows, sales dynamics, and investor feedback on stock price performance in Q1 2026. Core conclusions show that despite weak stock markets, insurance funds' equity allocation still increased quarter-on-quarter; Q2 premium growth slowdown was consistent with expectations, individual stock performance diverged; investors express concern over short-term performance of life insurance stocks, but the report favors mid-term opportunities for China Life and Ping An Insurance.

Core views

Regarding fund flows, Q1 2026 Insurance Fund AUM grew 2.5% qoq to RMB 39.4 trillion, driven mainly by stable premium growth (+6.2% yoy), though partially offset by fair value losses on equity and bond investments. Equities became the fastest-growing asset class, with stock and securities fund allocation ratio increasing slightly 0.1 percentage points qoq to 16%, reflecting bottom positioning and trend toward dividend-oriented products. Bond allocation ratio increased +0.1 percentage points qoq to 51%, as insurers seized opportunities from rising long-end yields. Non-standard assets and bank deposit allocation continued downward trends. On the sales front, first-year regular premium growth for most listed insurers slowed yoy since Q2, due to factors including concentrated maturity of deposits in Q1, preparation period for new insurance banking regulatory rules effective July (Document 65), and high comparison base. Document 65 requires more detailed expense and cost allocation reporting, promoting healthy industry development but potentially reducing actual sales incentives and suppressing insurance banking sales. Taiping Insurance stood out due to adjusted insurance banking product strategy, China Life sales also performed better than peers but margins expansion expected to narrow, while Ping An faced pressure due to stricter commission discipline after regulatory review. Investor feedback shows that despite Q2 stock market rebound bringing earnings recovery expectations, China life insurance stocks (H/A shares) have recently lagged Hang Seng Index/CSI 300. Concerns include higher new business value comparison base starting June (due to rush before pricing rate cut at end of August 2025), A-share life insurance stocks underperformed H-shares by 20 percentage points year-to-date, mainly due to National Team reducing holdings in A-share insurance, A-share style shifting to tech sectors, and insurance funds increasing H-share insurance holdings (e.g., Ping An continuously investing in China Life H-shares).

Analysis framework

The report adopts a multi-dimensional analysis framework: First, track changes in insurance fund asset allocation through industry statistical data, combining premium growth and investment income analysis to identify AUM drivers; second, interpret premium growth divergence from regulatory policies (Document 65), product strategies, and base effects; finally, integrate investor survey feedback to explain relative stock price performance from fund flows, market styles, and shareholding structures. Regarding valuation methods, assessment value method is used for China Life, SOTP for Ping An Insurance, emphasizing key indicators such as beta coefficient, dividend yield, and new business value growth.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply and Demand Framework

  Insurance Fund Asset Allocation Analysis

  By tracking changes in allocation ratios across different asset classes (equities, bonds, non-standard, etc.), analyze industry fund flows and impact on capital markets, helping understand the link between insurer investment strategies and market volatility.

• Valuation methodsSOTP Segment Valuation

  Ping An Insurance valuation uses SOTP method

  Value each business segment of the company (e.g., life insurance, property insurance, banking, etc.) separately and sum them up, suitable for diversified financial groups, can reflect value of each business more accurately.

• Quantitative/Factors/Portfolio TheoryBeta/alpha analysis

  Individual stock beta coefficient affects stock price elasticity

  Due to high beta characteristics (72% of stock investments classified as FVTPL), stock price is more sensitive to equity market fluctuations, greater elasticity during stock market rebounds.

• Company Fundamentals and Financial FrameworkProfitability Quality Analysis

  New Business Value (VNB) and Operating Profit (OPAT) Growth

  By tracking new business value growth rate and operating profit growth, assess insurer core profitability and sustainability, Ping An Insurance expected double-digit growth in 2026.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China Life (2628.HK)

  Benefit Logic: High beta characteristics, Q2 sales performance better than peers, low earnings base

  Strengths

  72% of stock investments classified as FVTPL, earnings highly elastic to stock price; first-year regular premium growth exceeding peers since Q2

  Weaknesses

  Margins expansion expected to narrow in second half of year

  Comparison

  Benefits more from stock market rebound compared to peers

  Risks

  Stock market volatility affecting investment returns

• Ping An Insurance (2318.HK)

  Benefit Logic: Double-digit growth in new business value, high dividend yield and low valuation

  Strengths

  Expected double-digit growth in new business value and operating profit in 2026; Dividend yield 5.3%

  Weaknesses

  Q2 premium growth under pressure due to stricter commission discipline

  Comparison

  Valuation 6.1x P/OPAT is attractive

  Risks

  Uncertainty in implementation strength of regulatory policies

Key data

• Insurance Fund AUMRMB 39.4 trillionQ1 2026 +2.5% qoq
• Premium Growth+6.2%2026 Q1 yoy
• Equity Allocation Ratio16%Of AUM, Q1 2026 +0.1 pp qoq
• Bond Allocation Ratio51%Of AUM, Q1 2026 +0.1 pp qoq
• China Life FVTPL Stock Percentage72%2025 data, above peer average 57%
• Ping An Insurance Dividend Yield5.3%2026 Expected
• Ping An Insurance Valuation6.1x P/OPAT12-month forward

Impact & implications

The report believes that insurance funds increasing equity allocation shows industry confidence in bottom positioning of the stock market, but short-term premium growth slowdown and regulatory changes may suppress sector sentiment. China Life may benefit from stock market rebound due to high elasticity and low base, while Ping An Insurance attracts long-term funds with steady new business value growth and high dividends. Industry risks focus on stock market declines, long-term interest rate decline depressing spread, and operational experience deviations.

Risks

• Stock market downturn causing deterioration in investment returns
• Long-term interest rate decline depressing spreads
• Operational experience deviations greater than expected

What to watch

• Actual impact on insurance banking sales after Document 65 effective July
• Changes in New Business Value comparison base in Q3
• Continued trends in insurance fund equity allocation