CITIC Securities: Expect the insurance sector adjustment to end; recommend actively seizing major opportunities

CITIC Securities research reports state that the insurance sector has fallen by 15% since the beginning of the year. The main driver is external factors, and 1x PB is a reliable benchmark for positioning. The upward cycle in fundamentals has already been established for 2025, and since the first quarter of 2026 the trend has strengthened, including: the liability side continuing to reduce the cost of liabilities; the asset side having more choices; and strict regulation with “anti-overlapping competition” promoting the concentration of market share. At the same time, we look forward to the implementation of relevant policies under the “15th Five-Year Plan and beyond” to promote coordinated development between Medicare and commercial insurance, achieving a win-win outcome for patients, hospitals, doctors, innovative drugs, and insurance companies. We expect the insurance sector’s correction to be over, and to actively seize the major opportunity window.

Full text as follows

Insurance | Expected insurance sector correction to be over; actively seize major opportunity windows

The insurance sector has fallen by 15% since the beginning of the year, mainly due to external factors. 1x PB is a reliable benchmark for positioning. The upward cycle in fundamentals has already been established in 2025, and since the first quarter of 2026 the trend has strengthened, including: the liability side continuing to reduce the cost of liabilities; the asset side having more choices; and strict regulation to “anti-overlapping competition” that promotes market share concentration. At the same time, we look forward to the implementation of related policies under the “15th Five-Year Plan and beyond,” to promote coordinated development between Medicare and commercial insurance, achieving win-win development for patients, hospitals, doctors, innovative drugs, and insurance companies. We expect the insurance sector’s correction to be over, and actively seize the major opportunity window.

▍ The insurance sector has fallen by 15% since the beginning of the year, mainly due to external factors; 1x PB is a reliable benchmark for positioning.

The reasons the insurance sector has declined since the beginning of the year include: 1) the central government’s teams reducing their holdings, breaking expectations of a one-way bull market; 2) U.S. AI narrative shocks insurance intermediaries; 3) the Middle East war leading to expectations of global economic stagnation with inflation; and 4) insurance companies’ equity positions being at relatively high levels, meaning the first-quarter 2026 reports will be affected by the stock market decline. Driven by the above factors, valuations have returned to the lower historical percentiles. Measured by the A-share insurance index, over the past decade the overall PB range has been 1x–3x, with a median value of 1.75x. Current static PB is 1.26x. Compared with the entire sector’s 10%–15% ROE range, valuations have a relatively large margin of safety. Among weight stocks, China Ping An’s static PB is 1x, corresponding to ROE of 13%–15%. Historically, when positioning China Ping An at less than 1x PB, valuations have always reverted to above 1x PB. This is mainly because insurance companies’ balance sheets have already been priced using fair values to a sufficient extent, making the net asset metric a reliable measure for identifying the entry point.

▍ The upward fundamental cycle has already been established in 2025, and since the first quarter of 2026 the trend has been reinforced.

In 2025, the logic for the insurance sector’s cycle moving upward is: savings deposits migrate into insurance; insurance products shift from traditional insurance to participating/ dividend-linked insurance; market share concentrates toward mid-to-large insurance companies; interest rates bottom out and the bond yield curve becomes steeper; and on top of that, insurance companies actively enter the market and share the bull-market feast. Compared with 2025, since 2026 we believe the long-term upward trend in fundamentals has been further consolidated, including:

1） From the liability side, the industry structure is becoming more concentrated, and the cost of liabilities continues to fall. With large price volatility across asset classes and the break of one-way bull market expectations for stocks and gold, participating/dividend-linked insurance—along with other quasi-fixed-income products—has become the best choice for low-risk preference capital. Insurance companies further reduce the cost of liabilities. Some companies have introduced dividend-linked policies with guaranteed interest rates of 1.5% and 1.25%. Meanwhile, regulators are also guiding insurers to further lower demonstrated/illustrated interest rates. Regulators have conducted research into the fee situations of insurance companies’ bancassurance channels and issued stricter regulatory documents, which implies future market competition will be fairer. Fee spending is expected to decrease further, market share will become more top-heavy, and in the long run we believe the market will move toward a competitive landscape dominated by 3–5 leading companies.

2） From the investment side, equity and bond market corrections provide good opportunities for asset allocation by insurance companies. Since the second half of 2025, the bond market has been in a downward trend. For 30-year government bonds, local government bonds, and ultra-long-term government bond yields, after considering income tax on interest, they offer a relatively favorable allocation advantage. Insurance companies are expected to obtain a risk-free long-term tenor spread. With the stock market correction this year, the market has already broken the one-way expectation of a bull market. High-quality companies with stable profitability and stable dividend growth have regained attractiveness. Overall, insurance funds are shifting from FVTPL equity holdings toward FVOCI. Although stock market volatility will affect insurance companies’ net profit in the first quarter of 2026 to some extent, this is not the main factor that determines an insurance company’s investment value. Buying and selling insurance stocks based on quarterly profit fluctuations tends to have a lower chance of success. Instead, if profits decline due to short-term factors, it will bring a good opportunity for long-term positioning.

3） At the same time, as strategic investors, participating in targeted equity placements by listed companies will be an important path for insurance funds to broaden long-term returns. In the first quarter of 2026, the CSRC issued the “Decision on Amending the ‘Regulatory Opinions on the Application of Laws for Securities and Futures (No. 18)’” (Draft for Comments), expanding the types of strategic investors. It clarifies that institutions such as the national social security fund, the basic pension insurance fund, enterprise (occupational) annuity fund, specific commercial insurance funds, public funds, and bank wealth management products can serve as strategic investors, using patient capital as a strategic resource to support listed companies’ strategic investments. Under the rules, this category of investors will be defined as capital investors, while other real-economy investors will be defined as industrial investors. At the same time, the CSRC also plans to specify requirements for a minimum shareholding ratio. The principle is that strategic investors should hold a relatively large proportion of shares in the listed company. Further it states that strategic investors’ subscription to the listed company’s shares should generally not be less than 5%. They can participate in corporate governance of the listed company based on their shareholding ratio. This will greatly increase insurers’ enthusiasm for adding equity investments. Accounting can follow equity-method treatment and will not be affected by stock price volatility. At the same time, it will actively promote business synergies between listed companies and insurance companies, such as in fields including big health, elderly care, technology, and infrastructure.

▍ The “15th Five-Year Plan Outline and beyond” highlights the position of commercial insurance. It is expected that there will be corresponding policy support for commercial medical insurance, long-term care insurance, individual pensions, and more, and these may also drive coordinated development between Medicare and commercial insurance and promote the ecological development of insurance companies.

The “15th Five-Year Plan Outline and beyond” proposes that we should: accelerate the development of a multi-tier and multi-pillar pension insurance system, expand coverage of enterprise annuity plans, improve policies for individual pensions, and vigorously develop commercial pension insurance. Improve a multi-tier medical security system, refine cross-region medical settlement, and give full play to the supplementary保障 role of commercial medical insurance. Encourage commercial insurers to expand mechanisms for developing innovative drugs and medical devices, and encourage commercial insurers to expand the payment coverage for innovative drugs. Roll out long-term care insurance and improve a unified assessment system for the ability of older adults. According to the “Opinions on Accelerating the Establishment of a Long-Term Care Insurance System” released in March 2026, the goal is to basically establish a long-term care insurance system within about 3 years, and to control the overall premium rate for long-term care insurance at around 0.3% (0.15% each for employers and individuals). It will provide basic living care and reimbursement for medical nursing expenses for insured persons who have lost normal ability to function. This marks that long-term care insurance has officially moved from the local pilot stage since 2016 to the stage of a nationwide basic system.

▍ Risk factors:

Large fluctuations in the stock market; long-term decline in interest rates; policy sales growth falling short of expectations.

▍ Investment strategy: We expect the insurance sector’s adjustment to end. Actively seize major opportunities for industry development, and pay more attention to leading companies under an oligopoly trend.

The insurance sector has fallen by 15% since the beginning of the year, mainly due to external factors. 1x PB is a reliable benchmark for positioning. The upward fundamental cycle has already been established for 2025. Since the first quarter of 2026, the trend has strengthened, including: the liability side continuing to reduce the cost of liabilities; more options on the asset side; and strict regulation such as bancassurance and “anti-overlapping competition” driving concentration of market share. At the same time, we look forward to the implementation of related policies under the “15th Five-Year Plan Outline and beyond,” to promote coordinated development between Medicare and commercial insurance, achieving win-win development for patients, hospitals, doctors, innovative drugs, and insurance companies. We expect the insurance sector’s adjustment to be over. Actively seize the major opportunity window for industry development, and maintain a rating of “outperforming the market” (stronger than the broader market). Focus on leading insurance companies in an environment where the market structure becomes increasingly concentrated. Also focus on companies that may benefit from commercial health insurance policy.

（Source: Securities Times Network）