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Securities Times reporter Pan Yurong

As insurance investment returns have gradually declined, more and more insurance companies have tasted the bitter fruit of "over-promises" in the past three years.

In the past, life insurance companies seemed to be trapped in such a vicious circle: close to the regulatory ceiling, designing policies with a predetermined interest rate of 3.5% and 3%, promising customers a guaranteed return, and selling a large number of long-term policies with fixed interest rates; then, faced with the market environment where bank wealth management broke the "rigid payment", deposit interest rates fell, and stock fund volatility intensified, investment income continued to decline; however, in order to maintain the cash flow of policy maturity payments, insurance companies had to maintain the growth rate of new policies. How to quickly obtain premiums? It was still a familiar formula: close to the regulatory ceiling, sell high-interest policies, and make a guaranteed return to customers...

From 2019 to 2023, the investment yield of insurance companies fluctuated downward, from 4.94% to 2.23%, but until the end of July 2023, the guaranteed interest rate of the hot-selling insurance products was still as high as 3.5%. Some industry insiders predict that the average liability cost of the industry is about 3.1%. The interest rate spread loss is like a sword hanging over the heads of life insurance companies, and the slightest mistake may lead to catastrophic consequences.

The mandatory disclosure system for dividend realization rates, which will be implemented in 2023, is the best tool to constrain insurance companies to "practice what they preach" to customers. The newly disclosed dividend realization rates this year have dropped sharply, which is a warning to insurance companies for their past "over-promises": dividend realization rates are non-capital-guaranteed, and the past 100% realization rate cannot represent the future, and the minimum return on the dividend part can be 0.

At the beginning of the year, the regulatory authorities required all life insurance companies to "implement the principle of cost-benefit matching." Lowering the dividend realization rate may have another meaning: the industry should strictly abide by the nature of "dividends are not principal-guaranteed" and should adjust the rate down in a timely manner when investment performance is poor; otherwise, it will create an illusion of implicit guarantee in the market.

The discussion triggered by this incident also highlights the unique value of dividend insurance: it prevents insurance companies from promising high returns that cannot be sustained in the long run; it makes the return rate obtained by customers from dividend insurance consistent with the return rate of the entire market investment. These can help insurance companies spread market risks to customers, balance the interests of policyholders and companies, and thus help the insurance industry control the risk of interest rate spread losses.

The warning is not only applicable to dividend insurance. Currently, the risk of interest rate spread is sending a warning to the entire industry. Any insurance product that writes a fixed predetermined interest rate into the policy should keep this lesson in mind: in the long run, will the policy sold today become a negative asset in the future? After all, the lessons learned from every crisis should not be wasted.