Insurers Bet on High Dividends Through 2025

The latest research report from China Merchants Securities indicates that the landscape of investment, particularly in the insurance sector, is undergoing notable changesAs we approach the year 2025, the emphasis on high-dividend stocks is becoming more prominent for insurance funds, signifying both stable returns and a controlled risk environmentAnalysts predict that the increasing allocation towards these stocks will present a substantial opportunity for long-term strategic positioning in the insurance industry.

The insurance sector, known for its conservative approach in investment, has shown an impressive growth trajectory throughout 2024. By the end of the third quarter, the total investment balance of the industry reached 32.2 trillion RMB, marking a significant year-on-year increase of 14.1%. This surge can largely be attributed to the robust sales figures of savings products, particularly the popular whole life insurance policies

Interestingly, the overall investment structure remained stable; stocks and funds accounted for 13.2% of the investment portfolio among life and property insurance companies, while bond investments steadily climbed to 48.4%, reflecting a growing preference for fixed-income assets.

Insurance companies have indeed demonstrated conservative investment styles, especially those that are publicly listed, holding nearly half of the industry’s total market shareThe annualized financial investment return in the third quarter slightly improved to 3.1%, indicating a resilient performance regardless of market fluctuationsA significant pivot was observed towards investing in high-dividend stocks and long-term equity holdings, which are expected to generate excess returns relative to more traditional investments.

In the first half of 2024 alone, the high-dividend strategy adopted by insurance funds managed to influence overall market trends significantly

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By the end of June, major publicly listed insurance companies had collectively increased their holdings in FVOCI (Fair Value Through Other Comprehensive Income) stocks by approximately 965.4 billion RMB, pushing the total to over 3.55 trillion RMBThis shift translated into a 5.4 percentage point rise in equity holdings relative to the start of the yearHowever, as the third quarter approached, a slight deceleration was noted in new allocations towards high-dividend stocks.

By the end of September, the distribution of significant holdings reflected advantageous positioning across several sectorsBanks led the way with 47.0% of shares, followed by real estate, telecommunications, capital goods, and public utilities, highlighting the sector’s strategic focusNotably, while banks and real estate saw gradual reductions in holdings since the first quarter of 2024, there was an increasing interest in utilities, transportation, and energy sectors.

Looking at broader trends, 2024 experienced a resurgence in mergers and acquisitions, with a record number of 20 stake increases—a peak not seen in almost four years

Target companies were predominantly listed on the Hong Kong Stock Exchange and had market capitalizations exceeding 10 billion RMBThe average return on equity (ROE) for these firms stood at 8.9%, with dividend yields averaging around 4.3%. The sectors witnessing the most activity included utilities, transportation, and environmental protection.

An interesting development was also seen in the exchange-traded funds (ETFs) sector, where insurance funds significantly increased their exposureBy the first half of 2024, insurance companies held ETFs valued at 177.4 billion RMB, reflecting a 13.5% increase since the beginning of the yearThere was a marked preference towards broad-based index ETFs alongside a strategic pivot to dividend-focused ETFs, showcasing a refined approach towards sector-specific investments.

Concerning bond investments, a clear inclination towards long-duration government bonds was noticed, with insurance funds actively managing both long-term allocations and credit risks

By November 2024, a staggering 91% of the bonds held by insurance institutions were government-related, further underlining the cautious strategy adopted amidst declining yields in non-standard investments.

Reflecting on the overall investment dynamics, it is essential to highlight that the low-interest-rate environment and evolving regulatory frameworks are reshaping the investment landscape for insurance companiesBy 2025, the allocation of insurance funds is projected to reach approximately 35 trillion RMB, suggesting a sustained momentum in growthWith the continued popularity of savings insurance driving premium income, the assets under management are expected to see a double-digit growth pattern.

As the fixed income landscape becomes increasingly challenging, especially with the prevalence of long-term government bond yields now falling below established interest rate floors, insurance companies are likely to recalibrate their investment strategies