UBS Bullish on Insurance Stocks: China Life Offers High Beta, Ping An Delivers Strong Dividends

Overview

This report analyzes trends in fund allocation, recent sales performance, and investor feedback for China’s insurance industry, based on Q1 2026 industry data released by the National Financial Regulatory Administration (NFRA). UBS believes that despite Q2 premium growth deceleration and near-term regulatory headwinds, insurance funds’ contrarian equity purchases in Q1 lay a solid foundation for future earnings. At the stock level, the report maintains Buy ratings on Ping An Insurance and China Life H-shares, highlighting their differentiated advantages—earnings elasticity for the former and stable returns for the latter.

Core views

On fund allocation: total insurance fund assets under management (AUM) grew 2.5% QoQ to RMB 39.4 trillion in Q1 2026. Despite weak equity market performance, insurers increased equity allocations—stocks and securities investment funds rose 0.1 percentage points QoQ to 16% of total AUM, while long-term equity investments rose to 7.8%, reflecting both opportunistic bottom-fishing and structural shifts toward dividend-paying products. Concurrently, bond allocation edged up to 51%, while non-standard assets and bank deposits continued to decline, indicating ongoing portfolio rebalancing to address yield pressure in a low-rate environment. On sales: first-year regular premium (FYRP) growth has moderated as expected since Q2 began. Key drivers include: the waning effect of fund migration from maturing deposits in Q1; a high YoY base in Q2 2025; and proactive pacing adjustments by insurers ahead of the July implementation of 'Circular No. 65', which mandates more granular expense reporting and cost allocation. While the circular supports long-term industry health, it may temporarily dampen sales incentives—particularly in the bank-insurance channel. Among peers, CPIC outperformed due to product strategy adjustments; China Life performed better than most peers but may see marginal expansion narrowing; Ping An faced short-term growth pressure due to prudent compliance practices. On stock price performance and investor sentiment: despite an equity market rebound in Q2 lifting earnings recovery expectations, the life insurance sector significantly underperformed the broader market over the past week. Key investor concerns include increasingly difficult YoY VNB comparisons starting in June and the ~20-percentage-point YTD underperformance of A-share life insurers relative to H-shares. A-share weakness is attributed to ‘national team’ selling, market rotation into technology stocks, and insurance funds themselves increasing H-share holdings (e.g., Ping An’s增持 of China Life H-shares). On stock selection rationale: UBS prefers China Life H-shares, given its high equity price sensitivity (72% of equities classified as FVTPL—well above the peer average of 57%), above-average Q2 FYRP growth, and low YoY earnings base. It also favors Ping An Insurance H-shares, forecasting double-digit VNB and Group Operating Profit After Tax (OPAT) growth in 2026, coupled with a current 5.3% dividend yield and valuation of just 6.1x P/OPAT—providing a high margin of safety.

Analysis framework

The report adopts a three-dimensional analytical framework: 'macro data + high-frequency tracking + investor sentiment'. First, NFRA quarterly statistics are interpreted to identify broad trends in insurance fund asset allocation. Second, channel-level surveys and regulatory milestones (e.g., Circular No. 65’s effective date) inform short-term sales pacing forecasts. Third, buy-side feedback is gathered to explain short-term divergences between stock prices and fundamentals—and thereby identify stocks offering both fundamental support and trading appeal.

Methodology notes

• Insurance-Specific MetricsEmbedded Value (EV)/New Business Value (NBV)

  Value of New Business (VNB) and Valuation Using Embedded Value Methodology

  VNB measures the present value of future profits from newly sold policies in the current period, serving as the core metric for assessing life insurers’ growth potential. The embedded value methodology values life insurers by adjusting net assets for in-force business value and applying a multiple to new business value—offering a more accurate reflection of insurers’ long-duration liability characteristics than simple P/E ratios.

• Valuation MethodologySum-of-the-Parts (SOTP) Valuation

  SOTP Valuation for Ping An Insurance

  For diversified financial conglomerates like Ping An—with insurance, banking, and technology businesses—SOTP assigns distinct, industry-appropriate valuation metrics to each segment (e.g., EV for life insurance, P/B for banking), then aggregates them. This approach captures the true economic value of multi-business models, avoiding distortions inherent in single-metric valuations.

• Corporate Fundamentals & Financial FrameworkProfit Quality Analysis

  FVTPL Asset Weight and Earnings Elasticity

  Changes in fair value of FVTPL (Fair Value Through Profit or Loss) assets flow directly into current-period net income. The report notes that 72% of China Life’s equities fall into this category, implying significantly higher earnings elasticity versus peers during equity rallies—a key financial attribute for gauging near-term profit upside.

Asset mapping & comparison

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

• China Life (2628.HK)

  Beneficiary: High-elasticity play benefiting from equity market rebound

  Strengths

  72% of equity assets classified as FVTPL, delivering exceptional profit elasticity; Q2 FYRP growth outpaces peers; low YoY earnings base

  Comparison

  Relative to Ping An, China Life exhibits higher earnings volatility—but stronger offensive attributes in bull or rebound markets

  Risks

  A sharp equity market correction would directly impair current-period profits

• Ping An Insurance (2318.HK)

  Beneficiary: Integrated financial leader combining stable growth and high dividends

  Strengths

  Forecast double-digit VNB and OPAT growth in 2026; 5.3% dividend yield provides downside protection; valuation at trough levels (6.1x P/OPAT)

  Weaknesses

  Short-term commission consistency controls—driven by compliance prudence—weighed on Q2 sales growth

  Comparison

  Relative to China Life, Ping An offers more sustainable, lower-volatility growth—suitable as a core holding

  Risks

  Uncertainty around regulatory enforcement intensity could prolong the sales recovery timeline

Key data

• Q1 Insurance Fund AUMRMB 39.4 trillionUp 2.5% QoQ, up 6.2% YoY
• Q1 Equity Asset Allocation Ratio16%Stocks + funds up 0.1 pp QoQ; long-term equity investments up 0.2 pp to 7.8%
• China Life FVTPL Equity Weight72%Significantly above peer average of 57%; earnings highly sensitive to equity market moves
• Ping An Insurance 2026E Dividend Yield5.3%Corresponding to 12-month forward P/OPAT of 6.1x
• A/H Life Insurance YTD Return Gap20 ppA-share life insurers underperformed H-shares by ~20 percentage points YTD

Impact & implications

The report concludes that although near-term challenges—including regulatory transition and high YoY bases—persist, insurance funds’ proactive equity positioning in Q1 will translate into substantial profit realization once markets stabilize. For investors, a differentiated approach is warranted: capital seeking high beta and earnings leverage should focus on China Life H-shares; those prioritizing long-term compounding, cash flow returns, and integrated financial synergies will find Ping An Insurance H-shares a more defensive and compelling allocation. In H2, close attention should be paid to the implementation rigor of Circular No. 65 and its tangible impact on bank-insurance channel productivity.

Risks

• A sharp equity market decline, dragging down insurers’ investment income and profitability
• Prolonged low-interest-rate environment, exacerbating asset-liability matching difficulties and reinvestment risk
• Worsening operational experience deviations (e.g., lapse rates, morbidity) beyond expectations

What to watch

• Actual execution rigor and sales recovery trajectory in the bank-insurance channel following Circular No. 65’s formal implementation
• Stability of equity markets over the remainder of Q2 and implications for insurers’ mid-year earnings
• YoY changes in new business value (VNB) base and emerging signs of marginal improvement in H2