Goldman reiterates the China insurance ROE debate: falling net investment yield and 1Q26 profit headwind are now the core tension

Overview

This report revisits the sustainability of mid-term ROE after FY25 earnings were released by Chinese insurers. Goldman believes that although FY25 headline profits and NBV growth were strong, they relied heavily on equity investment returns and bancassurance channel contribution; the continued decline in net investment yield weakens life insurers' core investment spread. Going into 1Q26, weaker equity markets and rising macro uncertainty have made near-term profit pressure, book-value volatility, and solvency changes the main focus.

Core views

The key views are: first, FY25 results were broadly in line with expectations, but the quality of underlying ROE is weak as net investment yield declined on average to around 2.94%; second, solvency remains above regulatory minimums, so it is not the main short-term constraint; third, increasing equity allocation further would raise sensitivity of earnings and book value to market moves, potentially limiting insurers' ability to take additional risk; fourth, the distribution side remains supported, especially NBV growth from the bancassurance channel and product repricing, while Middle East conflict, macro uncertainty, and high oil prices could weigh on sales and auto insurance claims.

Analysis framework

The report updates valuation and earnings outlooks for Chinese life and property insurers by combining FY25 performance review, net investment yield trend, equity-price downside sensitivity, solvency, NBV, and premium sales trends. Goldman incorporates 1Q26 equity market weakness, industry premium-sales trend, FY25 book values below expectations, FY26 earnings downgrades, and related factors into its model, and adjusts FY26-28E EPS, book value, dividend assumptions, and 12-month target prices accordingly.

Methodology notes

• Valuation frameworkSOTP valuation

  Sum-of-the-parts valuation

  For universal insurers such as Ping An, CPIC, China Taiping, and PICC Group, the report applies an SOTP approach, valuing life, P&C, reinsurance, banking, and other segments separately before combining for 12-month target prices.

• Valuation frameworkROA/ROE-based target price

  Target price based on return metrics

  For life or P&C operations, the report uses forecast ROA or ROE to derive a reasonable P/B ratio, then sets 12-month target prices. For example, China Life and NCI use the ROA framework, while PICC P&C uses the ROE framework.

• Risk analysisEquity asset price sensitivity analysis

  Impact of equity investment declines on book value and earnings

  The report estimates the impact of a 10% decline in equity investment value on insurers' book value and FY26 profit growth, noting book value could fall 5%-15% and FY26 profit growth could fall 18%-43%.

• Factor frameworkGS Factor Profile

  Growth, Financial Returns, Multiples and Integrated factors

  Goldman compares stocks against the market and peers using four attributes: Growth, Financial Returns, Multiple, and Integrated. For financial stocks, it focuses on EPS growth, sales growth, ROE, P/E, P/B, and dividend-related metrics.

Asset mapping & comparison

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

• Ping An Insurance Group H/A

  Goldman maintains a Buy and lists it as one preferred name.

  Strengths

  Target prices of HK$75.0/Rmb77.0, with upside in life insurance operating profit outlook, strong NBV growth guidance, and diversified earnings from integrated financial businesses.

  Weaknesses

  Sensitivity of FY25 book value to equity price levels rose significantly; reduced bank earnings expectations weigh on FY27 and FY28 earnings forecasts.

  Comparison

  Compared with some peer life insurers, Goldman sees stronger earnings resilience and clearer shareholder return visibility here.

  Risks

  Further declines in operating profit or CSM, deterioration in sales mix, and losses or impairments in non-insurance investment assets.

• China Pacific Insurance H/A

  Goldman keeps H shares on Buy and A shares on Neutral.

  Strengths

  H-share target price of HK$38.0. SOTP captures value in both life and P&C segments, with NBV growth and P&C underwriting performance as key supports.

  Weaknesses

  NBV growth may lag leaders if core agent scale cannot expand; intensifying P&C competition may depress underwriting results.

  Comparison

  H shares are more attractive from a rating perspective than A shares; Goldman continues to prefer CPIC H.

  Risks

  New business value growth below expectations, rising P&C underwriting losses, lower payout ratios, and continued declines in long-term government bond yields.

• PICC P&C

  Goldman maintains Buy, making it one of the most preferred P&C names in coverage.

  Strengths

  Target price HK$19.6 with implied upside of about 32%; FY26E dividend yield around 5.2%; P&C valuation is based on FY27E P/B of 1.2x.

  Weaknesses

  Auto premium growth expectations have been revised down, and higher oil prices may push up auto claims ratios.

  Comparison

  Among covered insurers, it has higher implied upside and a different earnings driver profile than life insurers, with less pressure from life-investment spread compression.

  Risks

  Lack of additional shareholder return actions, underwriting outcomes below expectations, and rising catastrophe-related claims.

• China Life Insurance H/A

  Goldman keeps Neutral.

  Strengths

  Higher elasticity when the A-share market rises; potential upside catalysts if NBV keeps growing in double digits or shareholder return plans beat expectations.

  Weaknesses

  Declining net investment yield and earnings/book-value pressure from equity-market volatility.

  Comparison

  Goldman does not classify it as a preferred name compared with Ping An and CPIC H.

  Risks

  Further weakness in investment markets, 10-year government bond yields falling below 2%, weak insurance sales in lower-tier cities, and lower than peer improvements in agent productivity.

• New China Life Insurance H/A

  Goldman maintains Sell.

  Strengths

  If the A-share market rebounds, the stock could benefit because of higher leverage to investment outcomes; stronger cost discipline and sustained NBV growth could improve ROE.

  Weaknesses

  Higher sensitivity to investment results and equity-market volatility; target prices of HK$37.0/Rmb49.0 imply meaningful downside risk.

  Comparison

  Among covered life insurers, Goldman has the most cautious risk-reward view on this name.

  Risks

  Investment outcomes below expectations, NBV growth not sustained, weaker-than-expected dividend policy, and downward pressure from rates.

• China Taiping Insurance Holdings

  Goldman keeps Neutral and raises the target price to HK$21.0.

  Strengths

  Payout ratio assumption raised to 21%-23% for FY26-28E, improving life insurance earnings outlook, and FY25 DPS growth of 251% year-over-year.

  Weaknesses

  Target price remains below in-report share price, and both life and non-life segments face profit growth pressure.

  Comparison

  Valuation is lower but uncertainty is higher; Goldman does not classify it as a preferred name.

  Risks

  Investment outcomes weaker than expected, inability to sustain new-business sales growth, continued drawdown in CSM balance, and payout ratio below expectations.

• PICC Group H/A

  Goldman is Neutral on H shares and Sell on A shares.

  Strengths

  PICC P&C value is a key strength; if P&C dividend yield exceeds expectations, more capital may be upstreamed to the group.

  Weaknesses

  ROA outlook for life and health, as well as book value and solvency, remain exposed to long-term rate and investment impairment risks.

  Comparison

  Group-level attractiveness is lower than standalone PICC P&C.

  Risks

  Further decline in long-term government bond yields, major drops in core solvency for life and health, falling agent scale and channel profitability, impairment of investment assets, and unsustainable DPS growth.

Key data

• Average net investment yield of life insurers2.94%Average net investment yield for China Life, Ping An, CPIC, NCI, and Taiping declined by 32 bps.
• Estimated guaranteed return on legacy policies in 2026about 2.7%-2.8%Compared with about 2.94% net investment yield, the investment spread based on net investment results is around 10 bps.
• Impact of a 10% decline in equity investment valueBook value down 5%-15%; FY26 profit growth reduced by 18%-43%China Life, NCI, and Taiping have higher book-value sensitivity; Ping An saw the highest increase in sensitivity in 2025.
• 1H26 net profit forecastyear-over-year decline of 8%-55%Goldman expects covered China insurers to face 1H26 net profit pressure, and the 1Q26 decline may be even larger.
• 1Q26 market performanceCSI300 down about 4%, HSI down about 3%Equity market weakness may make investment returns softer.
• FY26E EPS revisionsMost companies cut by 3%-12%; Taiping raised by 1%Mainly due to 1Q26 equity market declines; Taiping is supported by lower effective tax rates and higher CSM release assumptions.
• Taiping dividend payout ratio assumptionRaised to 21%-23% for FY26-28EPreviously 17%; previously supported by FY25 DPS growth of 251% year-over-year and guidance that future dividends may be more stable.
• China insurers' 1Q26 disclosure timingApril 28-30, 2026The report says key focus should be NBV, profits, book value, solvency, and management sales guidance.

Impact & implications

The investment implication is that the market may move from focusing mainly on strong FY25 earnings and NBV growth to emphasizing mid-term ROE quality, narrowing net investment spread, and the amplification effect of equity market volatility on earnings and book value. If insurers continue to raise equity allocation, long-term total investment returns may improve, but short-term profit volatility, solvency pressure, and uncertainty around shareholder returns would also increase. Therefore, Goldman prefers names with more stable earnings drivers and more controllable capital and book-value sensitivity.

Risks

• Further equity market declines, pressuring investment income, profits, book value, and solvency.
• 10-year sovereign bond yields continue to fall, compressing life insurance profitability on long-duration products and ROA outlook.
• Higher equity allocation further increases P/L and book-value sensitivity to market volatility.
• Macro uncertainty and Middle East conflict affect insurance sales momentum.
• Higher oil prices may hurt life insurer sales and increase auto claims through driving behavior and repair costs.
• NBV growth in bancassurance or agency channels comes in below expectations.
• Dividend payouts below expectations, or capital depletion limiting shareholder return.
• Higher disaster-related claims, reducing P&C underwriting profit.

What to watch

• 1Q26 earnings of China insurers disclosed on April 28-30, 2026.
• Changes in 1Q26 book value and core solvency of life insurers.
• Management commentary on latest sales momentum, bancassurance channel feedback, and agent-channel trends.
• Trends in NBV growth, margins, and incremental improvement from product repricing.
• Equity market and 10-year sovereign yield movements.
• Whether insurers slow the pace of raising equity allocations after market volatility.
• Auto premium growth outlook and the impact of higher oil prices on auto claims rates.
• FY26-28E dividend policy and payout ratio guidance.