The intricate tapestry of the global capital market is woven with various institutional investors, and among them, the insurance fund plays a crucial roleOn January 23, during a press conference hosted by the State Council Information Office, a notable statement came from Xiaoyu Qi, the deputy head of the Financial Regulatory BureauHe emphasized the ambition of major state-owned insurance companies to allocate at least 30% of their new premiums towards equity investments each yearFurthermore, he revealed that the second round of pilot programs for long-term stock investments by insurance funds would set a target of 100 billion yuan, with 50 billion yuan approved before the Spring FestivalThis announcement has sparked considerable interest within the market.

Industry insiders predict that this initiative could result in an estimated annual influx of hundreds of billions of yuan into the stock market

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Enhancing the proportion and stability of insurance funds in the A-share market will not only mitigate market volatility but also inject a steady stream of long-term capital, thereby fostering a more stable investment structure in the marketplaceSuch changes may contribute positively to market sustainability and investor confidence in the long haul.

The anticipated surge in capital can significantly reshape the investment landscape, with estimates suggesting that transitioning just 1% of insurance industry assets into equity could yield more than 300 billion yuan annually for the stock market, just considering existing fundsAlongside new premiums and the restructuring of maturing assets, the amount of capital entering the market could rise even higherFurthermore, a shift towards high-dividend stocks within the equities and funds could garner an additional influx of over 400 billion yuan.

The data recently disclosed by the five major listed insurance firms indicate that in 2024, these entities are projected to generate a combined premium revenue of approximately 2.84 trillion yuan, reflecting a year-on-year growth of around 5.27%. Factors such as an increase in domestic insurance demand and the relative attractiveness of insurance product yields are anticipated to bolster the continued growth of premium income, forming a solid foundation for future capital inflows into the market.

Xiaoyu highlighted the substantial potential within insurance companies to escalate their investments in equities, acknowledging that ramping up their stock investments represents a strategic asset allocation decision

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This approach can counteract the challenges posed by significantly low interest rates in the current economic environmentIncrementally increasing the investment in equity will facilitate the infusion of long-term capital into the stock market while bolstering the investment returns for the insurance industry itselfCompanies must identify quality investment targets that signify low price-to-book ratios and high cash dividend yields, especially in the banking sector, which could capture the attention of insurance funds under this new strategy.

Several insurance firms have initiated research into pilot projects for long-term stock investmentsXiaoyu commented that the intended scale for this second phase of pilots is 100 billion yuan, with an initial 50 billion yuan set to be immediately invested before the upcoming Spring FestivalObservers in the industry argue that establishing private equity investment funds directly from insurance capital would allow these firms to leverage their long-term investment advantages while potentially limiting the impact of market volatility on their net profits.

In October 2023, the Financial Regulatory Bureau authorized two major insurance entities, China Life and New China Life, to launch a pilot project that involves gathering insurance capital into a 50 billion yuan securities investment fund dedicated to the stock market

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As of March 4, 2024, this fund, named Honghu Fund, commenced operations and, by September 30, 2024, had accumulated equity capital of 32.01 billion yuan, predominantly focusing on industries critical to national economic stability and public welfare.

With each company contributing equally to the capital, the investment accounting will adopt long-term equity investment metrics, enabling them to allocate profits and dividends from the private equity fund proportionally, thus effectively mitigating the short-term profit fluctuation effects linked to public market investments under new accounting standardsXiaoyu suggested that the second wave of this pilot program would adopt a more flexible mechanism than the first, allowing investment funds to either be initiated by single insurance companies or through partnerships between multiple firms.

Insights from analysts, including Yang Fan from CITIC Securities, predict an increase in private equity securities funds, especially firms leaning heavily on equity investments that are likely to engage more vigorously in these ventures.

To reinforce the capital market's stability, regulators have introduced a suite of policies designed to guide insurance capital toward long-term investments

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Various insurance firms have publicly committed to utilizing their capabilities in long-term investment to support market stability robustlyFor instance, PICC Asset Management has pledged to adhere to the philosophy of patient long-term capital management, progressively honing their investment skills, deepening industry research, and directing financial resources towards critical sectorsThis strategy aims to boost capital market stability and vitality while promoting high-quality growth in the capital market.

China Life's asset management division has indicated plans to bolster their patient capital mechanisms, emphasizing long-term performance metrics in their incentive structures and investing more rigorously in strategic sectors, including technological innovation, industrial upgrade, and low-carbon development initiatives.

Ping An Insurance has affirmed its commitment to supporting national initiatives by leveraging its capacity for hefty long-term investments while employing diverse financial tools and strategies aimed at fostering growth in advanced manufacturing, new infrastructure, and value-driven sectors