Balance of insurance fund utilization reaches 24.46 trillion yuan shrinking indirect financing expanding direct financing

In order to further promote the high-quality development of the insurance asset management industry and improve the quality and efficiency of insurance funds to serve the real economy, the CBIRC issued the Interim Measures for the Supervision of Insurance Asset and Liability Management in August 2019, which has been in place for more than three years. Recently, the Securities Daily reporter interviewed a number of insurance asset management companies about the effectiveness and difficulties of insurance funds serving the real economy in the past three years.

In the past three years, insurance funds adhere to the "stabilizer", "booster" and "ballast" function positioning, continue to help the development of the real economy. As of the end of June 2022, the balance of insurance fund utilization reached 24.46 trillion yuan, 40.8% higher than the end of June 2019. Among them, the balance of bonds was 9.7 trillion yuan, up 62.1%; the combined balance of securities investment funds and stocks was 3.2 trillion yuan, up 45.4%; and the balance of bank deposits was 2.6 trillion yuan, up 8.6%.

In the past three years, the ability of insurance funds to serve the real economy has been steadily improving, but at the same time, the industry is also facing some new challenges, for example, the integration of insurance funds and industrial capital needs to be strengthened, and there is still room for improvement in the ways and means of service. As Cao Deyun, executive vice president and secretary-general of the China Insurance Asset Management Association, said, insurance funds are not only facing the inherent requirements of the industry's high-quality development, but also have to think about how to integrate more y into the process and development of national strategies, the real economy, the construction of people's livelihoods, and the reform of the financial market in the context of the new pattern, the new environment, and the new economy.

Shift in style:

Contracting indirect financing to expand direct financing

"For a long time, China's financial market financing is dominated by indirect financing avenues such as bank loans, and insurance funds, as an important institutional investor, have been enriched in the supply of funds and optimized the financing in the form of direct financing such as bonds, stocks, funds, and alternative investments. structure at the same time, directly injected into the bloodstream of the real economy, and effectively serve the financial market reform." Cao Deyun said.

"The effective supply of funds for the real economy has grown steadily." On July 21, Ye Yanfei, head of the Policy Research Bureau of the CBIRC, said that the CBIRC effectively promotes banks and insurance institutions to improve the quality and efficiency of service to the real economy, optimize the allocation arrangements for the equity assets of insurance companies, and provide ancillary support for direct financing in a variety of ways, and as of the end of June, the balance of the use of insurance funds amounted to 24.46 trillion yuan.

According to the disclosure of the CBIRC, as of the end of June, the balance of insurance funds utilization balance, bond balance of 9.7 trillion yuan, accounting for 39.66%; securities investment funds and stocks combined balance of 3.2 trillion yuan, accounting for 13.02%; bank deposits balance of 2.6 trillion yuan, accounting for 11.69%; including long-term equity, alternative investments, including other investments of 8.71 trillion yuan, accounting for 35.63 percent.

Compared with three years ago, as the scale of insurance funds and the use of the system continues to improve, the way it serves the real economy has undergone a number of changes, a significant change is that the role of insurance funds through stocks, bonds, equity, debt and other ways to help the real economy of the role of direct financing has continued to highlight, and through bank deposits and other ways to help the real economy of the proportion of indirect financing continues to shrink.

According to the reporter's comb, as of the end of June this year, the proportion of insurers' bond allocation increased to 39.7%, compared with 3 years ago to improve 5.2 percentage points; while the proportion of bank deposits allocation of 11.7%, compared with 3 years ago, a decline of 3.5 percentage points. In addition, a spokesman for the CBIRC said in March this year that the proportion of insurance funds invested in bonds, stocks and equities remained at nearly 60 percent.

In addition to the above changes, in the past three years, some long-term funds continue to inject insurance funds into the "capital pool". Li Zhenpeng, deputy general manager of Taikang Asset and head of Infrastructure and Real Estate Investment Center, said, "In recent years, with the expansion of the scope of investors in insurance asset management products, especially the inclusion of long-term funds such as basic pension, social security fund and enterprise annuity, which will help the insurance asset management institutions to better guide the long-term funds to docking the real economy, and to serve the people's livelihood construction. "

The path for insurance funds to serve the real economy continues to broaden. Cui Bin, chief investment executive of PICC Asset, said, "The scope of insurance fund utilization is widening day by day, and has now become the mainstream financial institution with the richest investable broad asset classes in China. In terms of varieties, insurance funds cover equity, bonds, alternative equity debt, preferred shares, perpetual debt, real estate, derivatives and other categories; in terms of stage, across venture capital enterprises, equity funds, primary market, secondary market."

In all types of investment paths, insurance asset management products have become an important hand in serving the real economy. "Insurance asset management products have the advantages of clear transaction structure, short investment chain, and direct connection to entity projects. At present, the debt investment plan, equity investment plan, insurance private equity fund and other insurance system financial products, has become an important way for insurance funds to play the characteristics of long-term capital and serve the national strategy and the real economy." Cao Deyun said.

Advantages are revealed:

Actively integrating into the overall situation of economic development

In the past three years, insurance funds have continued to serve the country's major strategies and support the development of the real economy. In the continuous layout of transportation, municipal, water conservancy and other infrastructure at the same time, the configuration of the center of gravity gradually tilted to the major national strategies, strategic emerging industries, "double carbon" and green industries, regional coordinated development of industries and other directions.

According to the Insurance Asset Management Association disclosure, as of the end of last year, the insurance funds entity investment projects involving new infrastructure debt investment plan registration (registration) size of 114.020 billion yuan, mainly invested in intercity high-speed rail and intercity rail transit, ultra-high voltage, big data centers; insurance funds to debt investment plan, equity investment plan to support the registration of strategic emerging industries size of 417.997 billion yuan; insurance funds to debt investment plan, equity investment plan to support the registration of the scale of 417.997 billion yuan; insurance funds to debt investment plans, equity investment plans and insurance private equity funds to support the development of green industry registered scale of 1.06 trillion yuan.

As of the end of 2021, China Life's stock of investment in related areas amounted to 2.71 trillion yuan; Ping An of China has invested a total of 1.23 trillion yuan of insurance funds in the real economy; China Taipao's assets have initiated the establishment of a total of 187 alternative investment products, with a transfer amount of more than 300 billion yuan, and the investment areas cover municipal, energy, environmental protection, shanty towns, water conservancy and other industries.

The relevant person in charge of Everbright assets said that China's economy has entered a new stage of high-quality development, the company's investment model to adapt to change, in order to play the advantages of long-term capital investment. First, the proportion of investment in broad asset classes has changed, fixed income asset allocation has declined, and the proportion of equity allocation has risen significantly; second, in terms of investment coverage of industries and regions, the company is closely tracking the opportunities for the development of industries supported by the national policy under the new situation, and laying out the fields of scientific and technological innovation, new infrastructure, and upgrading of the manufacturing industry; third, the company is in the fields of green finance, "dual carbon" investment, science and technology innovation and upgrading, "specialization, specialization and innovation" and other areas adhere to the bottom-up incubation strategy, has issued the relevant management products.

The person in charge of Life Assets also said that in the past three years, the company has invested extensively in transportation, energy, "dual-carbon" targets, water conservancy, municipal, industrial parks, and housing through a variety of asset forms such as bonds, stocks, bank deposits, insurance debenture investment plans, and public REITs.

Multi-dimensional wind control:

No major risk events in the past three years

While insurance funds have made many achievements, some risks have also been exposed, such as, in 2020 and 2021, some insurers have been y dragged down by the credit risk of real estate companies. However, overall, the risks exposed by insurance funds in serving the real economy in the past three years are controllable.

In fact, as China's economy enters a new stage of transformation of old and new kinetic energy, handling the relationship between serving the real economy and risk prevention has become a new proposition that insurers must answer. Duan Guosheng, CEO of Taikang Asset, said that from a practical point of view, the investment challenges faced in recent years have been increasing day by day. Among them, the main challenge facing equity investment lies in the changes in the characteristics of the capital market. On the one hand, the correlation between the capital market and the macro cycle has weakened; on the other hand, the structural characteristics of the capital market are obvious, and the market is prone to extreme valuation differentiation, while the emerging industry investment is more difficult and more risky. Fixed income investment is facing three challenges: first, the interest rate pivot level back down, narrowing the fluctuation range; second, the credit risk situation is grim; third, the consensual fixed income assets continue to face a structural asset shortage.

In the face of many risks, insurance institutions to sum up the lessons learned, and continue to optimize the wind control system.

Cui Bin said, in the process of serving the real economy to guard against four major risks: First, to prevent investment behavior to the real economy to bring additional risks. The second is to accurately support and isolate the transmission of credit risk among the real economy. Third, avoid risk events affecting the main business of insurance. The fourth is to strengthen internal control to prevent shareholder misappropriation and employee moral hazard.

From the point of view of the risk prevention strategy of some institutions, the relevant person in charge of life assets said, the company built an internal credit rating system and credit assessment model, full coverage of fixed-income asset investment, real-time tracking of negative news of the counterparty, analyzing the changes in credit risk from the qualitative and quantitative perspectives, and actively preventing the potential loss due to major emergencies or unfavorable events.

The relevant person in charge of Everbright Asset said that the company prevents risks in multiple dimensions: firstly, it constantly optimizes the credit risk management system; secondly, it strengthens the application of financial technology means; thirdly, at the meso level, it strengthens the research and judgment about the impact of policy trends on the industry; fourthly, at the micro level, it strengthens the analysis on the sustainability of the enterprise's business model, corporate governance and financial soundness.

Eliminating pain points:

Efficient interaction and integration with the industry

In the past three years, in the process of serving the real economy, insurers, in addition to guarding against risks, are also facing new pain points. The reporter combed through the views of a number of industry insiders, summarized the industry is currently facing five major pain points.

One is that insurance organizations are more familiar with traditional infrastructure and energy businesses, but they do not have a deep enough understanding of new infrastructure, new energy and strategic emerging industries. In addition, insurance funds in recent years gradually increased in the field of equity investment, but the lack of cycle test, the lack of corresponding experience in the upgrading of science and technology industries, high-end manufacturing and other sectors.

Secondly, the lack of interaction between insurance funds and the industry has led to a certain degree of "lake weir" phenomenon when insurance funds are directly injected into the real economy, and it is difficult for large-volume funds to find investment projects to match long-term investment needs, and it has not resulted in the formation of efficient interaction and integration of funds and the industry.

Thirdly, although the long duration of the liability side of insurance funds matches the investment cycle of infrastructure business, but also due to the constraints of its liability side, the risk tolerance of insurance funds is extremely low and highly concerned about the credit qualification of the credit subject, there is often a contradiction between shortening the investment period of the project in order to control the credit subject's exposure to risk and lengthening the project period in order to satisfy the underlying project's cash flow measurement, i.e., credit risk and the risk of project construction and operation. Misalignment between credit risk and project construction and operation risk.

Fourth, under the background of credit environment downturn, in order to avoid credit risk and hedge project construction and operation risk, each organization prefers to choose large central state-owned enterprises and industrial leaders, which to a certain extent has formed the "stampede effect" and "homogeneous competition". In addition, the competition between the industry and other financial institutions such as banks and securities companies has intensified, which is not conducive to the protection of investors and the accurate and efficient use of funds.

Fifth, it is difficult to balance short-term investment returns and long-term investment returns. The long-term nature of insurance funds determines its service to the real economy has obvious advantages, can provide a stable source of funds, but at the same time there are rigid cost constraints, making it face short-term assessment pressure, long-term investment in the service of the real economy is often faced with the difficulty of access to public information, access to the fair value of the difficulty of access to short-term earnings assessment lack of basis for the difficulties.

Industry advice:

Based on the main business to serve the real economy

To solve the pain points mentioned above, insurance organizations need to work with regulators and industry associations.

Cao Deyun believes that insurance funds should be based on the main business of insurance, and actively integrate into the real economy and high-quality development, including based on the basic positioning, to participate in the large capital management market competition; to comply with the development trend, open up the channels of industrial integration; the development of equity investment, to optimize the structure of the whole market configuration; to open up innovative channels, to increase the application of new types of business research; to improve the rules and regulations system, and to optimize the policy environment of the insurance funds: to enhance the Self-discipline service, enrich the industry governance system and means.

Based on Taikang Asset's investment practice, Li Zhenpeng summarized four points of experience: first, focus on key industries or fields with development prospects; second, select outstanding partners for all-round strategic cooperation; third, emphasize the value created by research; and fourth, change the concept of active transformation.

A number of insurers also advised regulators and industry associations. The relevant person in charge of Life Asset suggested: first, optimize the solvency regulatory index system in conjunction with the importance of alternative asset investment; second, guide the insurance funds to optimize the assessment system and increase the weight of the long-term assessment; third, suggest that the regulator build a relevant docking platform to promote the depth of exchanges between insurers and real enterprises; and, fourth, give more targeted guidance in product innovation.

There are also insurance institutions that the industry can work from the following aspects: First, play an important role in the Insurance Asset Management Association, targeted docking of major construction projects, long term projects; Second, the service of the real economy, investment fund construction, protection of people's livelihoods, and other projects to give a certain degree of preferential policies; Third, the flexibility to deal with the duration of the assets of this type of project, for a long period of time, but the middle of the line of authority contained in the This type of asset, consider whether the duration of the asset can be judged by the manager or investor themselves; Fourth, the regulatory authorities to guide the insurance institutions to strengthen the cooperation with the provinces (autonomous regions and municipalities) development and reform, finance and other departments, led by the insurance asset management companies and key enterprises to establish a strategic cooperative relationship, through the project promotion meeting, investment fair and other forms of communication and exchange platforms for the insurance funds and the construction of major projects around the construction side.

Further opening up the "blocking point" of the insurance capital to serve the real economy

In the past three years, the insurance capital to serve the real economy of high-quality development achievements. However, in the process of insurers continue to serve the real economy, there are also some "blocking points", that is, the demand for insurers to serve the real economy continues to grow, but the path directly to the real economy is narrower, which not only allows insurers to match the appropriate assets, but also the real economy can not "quench their thirst! "

This is the first time in the history of the world's largest insurance company.

There are three major reasons for the formation of the "blocking point":

First, the biggest difference between insurance capital and other funds is that it has a "rigidity". Rigid costs have raised the threshold of the insurer's service to the real economy, narrowing the scope of asset allocation. This also requires the insurance capital in the service of the real economy in the process, the first to consider the matching degree of the two ends of the capital and negative.

Secondly, in the past three years, the industry's premiums have continued to grow, superimposed on a large number of maturing insurance funds need to be re-invested, making it difficult for insurers to match the "right" assets. From the point of view of new premiums, the insurance industry in 2019-2021 total new premiums of more than 13 trillion yuan. From the reinvestment of assets, China's personal insurance industry average liability duration of about 12.67 years, asset-liability duration gap of about 6.28 years, "long money short match" is the inevitable result of reinvestment pressure.

Third, China's old and new industrial transformation and upgrading at the time of the emergence of new investment risks to the insurers "afraid of the end". In the past many years, the underlying assets of the insurance investment target is mostly real estate, infrastructure and other traditional industries and fields, the type of return on fixed income, insurers have also formed a set of effective method of play. In the new stage of development, if you stick to the previous investment strategy, it is difficult to enhance the efficiency of the service of the real economy, therefore, the insurers urgently need to shift the focus of investment to the new industry, new track, but the investment and research capabilities in the field of the new economy is difficult to keep up in the short term.

Based on the above reasons, insurance organizations can further strengthen their ability to serve the real economy from the following dimensions.

First, from the perspective of asset-liability matching management, reduce the cost of the liability side appropriately, so as to leave enough space for insurance funds to serve the real economy. This requires insurers to continue to improve fee spreads and deadweight spreads, reduce the pressure on profit spreads, and improve the underwriting capacity of the liability side.

Second, continue to refine the investment and research capabilities. In this regard, insurers should start from four aspects: strengthening the construction of talent team, especially to strengthen the construction of talent in the field of equity investment; establishing a performance appraisal system suitable for practicing the purpose of long-term investment and value investment; strengthening the research in the field of the new economy to enhance the direct access to the industry; and strengthening the wind control mechanism.

Moreover, the regulation should continue to loosen and boost the insurance capital to serve the real economy. The insurance capital to serve the real economy need to take into account the solvency, assets and liabilities, asset allocation and other regulatory requirements, out of risk prevention considerations, these regulatory provisions are necessary. But from the perspective of enhancing the quality of service to the real economy, regulatory policy still has room for relaxation, for example, can invest in the real economy related assets risk factor discount to enhance solvency.

"Pass is no pain, not pass is pain." In the concerted efforts of all parties, the insurance service real economy "blocking points" will be opened one by one, the insurance capital long capital, big capital, stable capital "potential energy" will continue to be transformed into support for the national strategy, services to the community and people's livelihood "kinetic energy! "

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