news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

Today's dividend insurance seems to have returned to the starting point 25 years ago.

Text/Daily Financial Report Li Jia

Recently, major insurance companies have begun to announce their dividend insurance realization rates for 2023, but the results are not impressive. According to incomplete statistics from the Daily Financial Report, among the more than 27 life insurance companies that have disclosed their dividend insurance realization rates, more than 400 products have a dividend realization rate higher than 100%, and more than 390 products have a dividend realization rate lower than 100%, which means that nearly half of the products have a dividend realization rate lower than 100%.

As for why the dividend realization rate of current dividend insurance products is so low, some analysts pointed out that the main reason is that at the beginning of the year, due to the downward trend in the industry's overall investment yield and serious interest rate risk, in order to reduce the liability costs of insurance companies and prevent industry systemic risks, the regulatory authorities implemented window guidance for some insurance companies whose investment yields in 2023 were significantly lower than the dividend yields, restricting the payment of dividends that exceeded their capabilities, and forcibly reducing the actual yields of universal insurance and dividend insurance, which led to a decline in the dividend level of some insurance companies.

This situation has aroused great concern among many consumers and the industry is also worried. A large number of questioning and even pessimistic voices have come one after another.

However, everything has two sides. The dynamic data cannot represent the entire industry. It is too one-sided to make assertions simply by deconstructing micro data.

If we analyze the background of the rise of dividend insurance, macroeconomic trends, regulatory policy orientation and industry development trends from multiple dimensions, we can draw the following conclusions:

Not only will dividend insurance become a major selling product for insurance companies in the present and in the future, but for consumers, dividend insurance also has a higher long-term insurance value, which is worthy of our long-term optimism.

The rise of dividend insurance, a 25-year cycle

Looking at the development history of dividend insurance in my country, each of its growth momentum can be said to have precisely stepped in the interest rate reduction cycle and low interest rate environment. It previously dominated the savings-type insurance products, especially around 2000, when my country was in an interest rate reduction cycle. At that time, the regulatory authorities adjusted the scheduled interest rate of life insurance policies to no more than 2.5% annual compound interest in June 1999.

In this context, the pricing interest rate has gone down. On the one hand, existing insurance products on the market are squeezed out by similar products; on the other hand, how to transfer the premiums resulting from the interest rate spread loss?

As the saying goes, "When sailing against the current, one must advance or retreat; to overcome difficulties, the only way is change." Not long after, China Life discovered dividend insurance from the reference of international developed markets, and independently developed the first dividend insurance product in the mainland called "Millennium Financial Management (Dividend Type)", which was officially launched in the market in April 2000. At the same time, this also marked the opening of the first door to the dividend insurance market in my country.

With the stability of the 2.5% pricing interest rate era and the continuous rise of the domestic consumer market, coupled with the rapid growth of my country's economy from 2000 to 2013, my country's dividend insurance has become the best-selling life insurance product on the market, and the development space is full of infinite imagination.

At that time, the scale of dividend insurance premiums had accounted for half of the premium income of the entire Chinese insurance market, and in 2007, it once accounted for 80% of the original insurance premium income, which was the most popular at the time. Even the increasingly popular whole life insurance has not achieved such an achievement.

However, the consumer market is always changing rapidly, and this is even more so for the insurance industry, which is related to the national economy and people's livelihood. It was not until 2013 that the first increasing term life insurance product was launched in mainland China. Subsequently, the 3.5% product interest rate was gradually widely accepted by the market. This type of insurance has had a certain impact on the entire dividend insurance market in the past decade.

Fortunately, since last year, my country has entered a new round of interest rate cuts. In order to prevent risks, relevant departments have not only lowered the guaranteed interest rate to control the interest rate spread, but also implemented the "reporting and banking integration" to control the fee spread. The 3.5% product interest rate increase life insurance has officially come to an end, which has allowed dividend insurance to usher in new development vitality.

It can be seen that whether dividend insurance is "coming into being" or "waiting for a correction" depends on the dual impact of the macroeconomic interest rate cut cycle and the rise and fall of the scheduled interest rate. In other words, in the context of my country's economy being in a round of interest rate cut cycles and the decline of scheduled interest rates, dividend insurance is a "weapon" for the development of insurance companies and the elimination of interest rate spread risks.

Obviously, considering the current macro-market economic environment in my country, today's dividend insurance has returned to the starting point of its rise 25 years ago, and dividend insurance is still continuing to release dividends.

Nearly half of the dividend realization rates fell short of expectations

There is no doubt that insurance funds are facing many challenges in asset allocation against the backdrop of falling market interest rates and weak performance of the capital market. At the same time, the formal implementation of the "reporting and banking integration" policy has forced insurance companies to take effective measures to reduce their liability costs.

In this context, dividend insurance, as a product type that can share part of the risk with customers and thus help insurance companies reduce the risk of loss due to interest rate changes, has been widely favored and expected by the industry and is regarded as the common transformation direction and strategic choice for the entire industry.

Public data shows that among the 73 life insurance companies that disclosed their top five products in terms of original premium income in their 2023 annual reports, 45 companies’ top five products involved dividend insurance, accounting for 61.64%, while the other 28 companies did not involve this type of insurance.

In terms of specific numbers, among the top five products of Taikang Life, Huagui Life and Allianz Life, as many as four are participating insurance products. PICC Life, China-Italy Life, Junlong Life, MetLife and Sino-Dutch Life have three products each; 15 insurance companies have two products; and the remaining 22 insurance companies have only one participating insurance product among their top five products.

Taking Taikang Life Insurance, Huagui Life Insurance and Allianz Life Insurance, which have the largest number of dividend insurance products among the top five products, as an example, their four dividend insurance products will have total premiums of approximately 73.201 billion yuan, 2.09 billion yuan and 1.407 billion yuan respectively in 2023, while the total insurance business income achieved by these three insurance companies in the same period was 203.188 billion yuan, 4.698 billion yuan and 5.387 billion yuan respectively.

A simple calculation shows that the total income from the four dividend insurance products among the top five products of Taikang Life Insurance, Huagui Life Insurance and Allianz Life Insurance accounted for 36.03%, 44.48% and 26.12% of the total premium scale last year respectively.

It can be seen that both insurance giants like Taikang Life Insurance and some small and medium-sized life insurance companies have made great efforts in the sales of dividend insurance products and have played a leading role in contributing to premium income. So, what about the dividend insurance realization rate of these insurance companies, which has attracted much attention in the market?

Judging from the overall industry data, we prefer to use the word "differentiation" to describe it. It is reported that there are more than 800 dividend insurance products that have disclosed data, but nearly half of the dividend realization rates have not met expectations.

Let's first look at Everbright Sun Life Insurance, which was the first to disclose the data of this indicator. It has a total of 39 dividend insurance products. The dividend realization rate in 2023 ranges from 19% to 115%, with a large range of values. Among them, only 6 products have a dividend realization rate of more than 100%, which is a very obvious decline. It should be noted that in 2022, among the company's 40 products, only the Everbright Sun Life Abundant Centennial Pension Annuity Insurance (Dividend Type) had a dividend realization rate of 92%, which failed to reach 100%, and the dividend realization rates of the remaining products were all above 100%.

In addition, the dividend realization rates of the three products sold by Everbright Sun Life, namely "Jinbao Hongli Whole Life Insurance (with Dividends)", "Jinbao Anying Annuity Insurance (with Dividends)" and "Xinxi Life Annuity Insurance (with Dividends)", have dropped from 167%, 161% and 100% in the previous year to 19% respectively.

Let's take a look at Great Wall Life Insurance, which has been very keen on "raising its hand" since last year. Its dividend insurance realization rate has attracted great attention. This is because among its 26 dividend insurance products, only three products, Great Wall Golden Jubilee Whole Life Insurance (Dividend Type), Great Wall Golden Jubilee Whole Life Insurance (Dividend Type), and Great Wall Jinyue Whole Life Insurance (Dividend Type), have a dividend realization rate higher than 100%, and the remaining 23 products have all fallen below 100%, with dividend realization rates ranging from about 75% to 85%. In contrast, the dividend realization rates of these products can all remain above 100% in 2022, and the decline is not small.

It is worth noting that due to suspension of sales and other reasons, some products of Ruita Life Insurance and Dingcheng Life Insurance even have "zero dividends". The corresponding products are the Shin Kong HNA Xiangrui Group Annuity Insurance (dividend type) sold by Dingcheng Life Insurance, and a sum insured dividend product of Ruita Life Insurance.

Of course, on the other side of the coin, some insurance companies' dividend insurance products have performed relatively well. According to statistics, among nearly 30 insurance companies, more than 22 dividend insurance products have a dividend realization rate of more than 200%.

For example, CCB Life Insurance, ICBC-AXA, Ai Xin Life Insurance, Sino-Korea Life Insurance and Bohai Life Insurance, respectively, had products with the highest dividend realization rates reaching 259% (CCB Youxiang Tianli Whole Life Insurance (with Dividends)), 241% (ICBC-AXA Life Wealth Enjoy Whole Life Insurance (with Dividends)), 240% (Ai Xin Life Ai Xin Hong Whole Life Insurance (with Dividends)), 225% (Sino-Korea Le Ying Wealth Whole Life Insurance (with Dividends)), and 202% (Bohai Life Fu Ru Dong Hai Annuity Insurance (with Dividends)).

The advantages of dividend insurance are still significant and worthy of long-term market optimism

As we mentioned at the beginning, the regulatory authorities have provided window guidance to some life insurance companies. As an important "driving force" for the decline in dividend levels of some insurance companies, the regulatory authorities have previously required some insurance companies to lower the level of dividend insurance realization rate, among which the upper limit of settlement interest rates for small and medium-sized insurance companies has been reduced to 3.3%; the upper limit of settlement interest rates for large insurance companies has been reduced to 3.1%.

Admittedly, in addition to this factor, the decline in the dividend realization rate of dividend insurance in 2023 is also closely related to the insurance company's own investment income, which cannot be ignored.

We know that in the past year, the equity market has fluctuated and interest rates have continued to fall. The investment income of insurance companies has been under tremendous pressure, and investment returns have declined, which has also directly affected their own dividend realization rate.

It can be seen that since the sources of dividends for dividend insurance include mortality difference, expense difference, interest rate difference, etc., it tests not only the investment capacity of the insurance company, but also the company's comprehensive operational capabilities such as asset-liability management capabilities and refined management capabilities.

From the consumer's perspective, is dividend insurance still worth buying now?

The Daily Financial Report believes that although the realization rate of dividend insurance is declining, this type of insurance still has a broad market. The fact that more than 60% of the top five products in terms of original premium income in 2023 involve dividend insurance products is the best proof of this.There is also a consensus in the industry that fixed-income products mainly based on dividend insurance should be the main products of the industry to reduce the rigid costs on the liability side and the probability of implicit interest rate spread loss crisis.

In addition, although regulators have taken action to limit dividends, the nature of fixed-income and dividend-paying savings insurance has not changed.The long-term returns of dividend-type insurance are still higher than those of fixed-income insurance, and can earn higher levels of returns. In addition, the guaranteed interest rates of dividend-type and fixed-income insurance tend to decline. In this case, the product model advantages of dividend insurance's "guaranteed minimum + dividend" will be further highlighted.

And most importantly, from the perspective of the overall national social and economic development, the development of floating-income insurance products represented by dividend insurance is of particular significance.

This is because, only when a number of insurance companies are brave enough to take steps and actively engage in the vast equity market, can insurance funds fully demonstrate their unique advantages as "patient capital", thereby enabling the entire industry to be in a virtuous cycle of promoting the transformation of funds into capital and then into high-quality assets, thereby achieving maximum efficiency and value.

As Li Yunze, director of the State Financial Regulatory Administration, explained at the Lujiazui Forum, we must stand at the overall height of the country's social economy, continue to promote the transformation of long-term insurance funds into patient capital, and grow into a true "social stabilizer" and "economic shock absorber" in the tide of social and economic development.

From this, it is not difficult for us to foresee that if major insurance companies vigorously strengthen their innovation in dividend insurance and continue to output new insurance products, it will not only be of great benefit to their own asset side, but also will be able to promote more long-term insurance funds to enter the market and help the capital market develop stably and sustainably.

WeChat: meiricaibao

Weibo: @DailyFinancialReport.com

Contact information

Content submission: [email protected]

Contact number: 010-64607577 / 15650787695

Investor communication group: Leave a message on the WeChat ID in the official account and be added to the group by the group owner