CITIC Securities: The insurance sector remains in a period of significant opportunity; AI narrative adjustment brings about a right-side investment window

CITIC Securities Research Report believes that over the next 3-5 years, insurance companies will continue to benefit from a strict regulatory environment and a competition landscape that opposes internal competition. The market share of the top seven firms is expected to remain concentrated; in a low-interest-rate environment, the migration of savings deposits to insurance companies is a win-win for banks, insurers, and customers. This trend is likely to persist long-term, fostering patient capital and strongly supporting the development of the stock market, bond market, and real economy.

From a policy perspective, regulators will continue to promote better asset-liability management, advance the second and third phases of the solvency regulation, reduce the number of small and medium-sized insurers while improving quality, and encourage insurance companies to participate as strategic investors in large-scale equity lock-in offerings of listed companies. The Southbound Trading Link is expected to increase quotas and introduce more overseas high-yield bonds into insurance portfolios. These policies will continue to act as catalysts for insurance sector stock prices.

Looking ahead to the first and second quarter reports of 2026, based on the low base in 2025, growth in new policy sales, investment income, and profits is highly certain. Recent adjustments in AI narratives present a right-side investment window. It is recommended to focus on leading companies with rapid growth in new business value, stable profitability and dividends, and relatively low valuations.

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Insurance | Maintaining the Right-Side Window Period Judgment, AI Opportunities Outweigh Challenges

AI narratives have led to declines in both domestic and international insurance stocks, mainly reflected in interest rate judgments and the sustainability of insurance companies’ business models. We believe that AI narratives exaggerate potential negative impacts, and that the sector’s opportunities outweigh its challenges, maintaining the view that the insurance industry is in a period of significant opportunity.

▍ Since early 2026, insurance stocks have experienced notable corrections, influenced by factors such as: the negative impact of Q4 2025 stock market declines on 2025 annual reports, broad-based ETF inflows suppressing liquidity, and AI-related sentiment concerns.

▍ From an interest rate perspective, insurance stocks benefit from China’s bond yield curve steepening.

As banks reduce long-term deposits and insurers shift toward dividend-paying policies, the demand for long-duration bonds decreases. We expect China’s fiscal deficit to be around 4% in 2026, with long-term bond supply remaining high. Under accommodative monetary policy, the yield curve is likely to continue its steepening trend since 2025. Additionally, given the uncertain real estate outlook and low CPI levels, we anticipate China’s interest rates will remain low for an extended period. Leading insurance companies are actively selling policies during this phase, expanding low-cost liabilities through dividend insurance and bancassurance channels, benefiting from the term spread. This presents a major opportunity. Unlike the U.S., China has a relatively high savings rate. Although short-term interest rates may continue to fluctuate at low levels, long-term rates could eventually improve overall productivity and long-term interest rates.

▍ From the six attributes perspective, AI era reconstructs the insurance value chain: opportunities outweigh challenges.

Unlike typical commodities and other financial products, we analyze the insurance value chain based on six attributes: necessity, amount, human nature alignment, frequency, service requirements, and trust. The most critical aspect is balancing human weaknesses (procrastination, optimism bias) with risk management needs. Products that counter human nature require stronger trust intermediaries (professional agents) and scenario triggers, while human-aligned products need to prevent sales suitability risks and demand mismatches. The long-term value of insurers lies in transforming “risk transfer” into “risk management services,” shifting from payers to partners in health, life, and services. Given China’s relatively low insurance penetration and diverse customer needs, AI applications present more opportunities than challenges for both tech firms and traditional insurers.

▍ Tech companies: AI models have potential for market exploration.

From the perspective of AI reconstructing insurers’ business models, we see breakthroughs in high-risk portfolios, scale, barriers, and traffic. For example, high-risk portfolios (counter-human nature + low frequency + high trust + large sums) include term life and pure critical illness products; scale portfolios (human nature-aligned + necessity + small amounts + high frequency) include million-dollar medical insurance and monthly premium accident insurance; barrier portfolios (focused on service + large sums + trust-intensive) include high-end medical insurance and insurance linked to senior living communities, emphasizing brand building; traffic portfolios (human nature-aligned + small amounts + light trust + high frequency) include internet scenario-based insurance (return, flight delay, screen damage) embedded in transaction scenarios.

▍ Traditional insurers: Evolving toward “AI + Human,” maintaining competitive advantages.

Based on the six attributes, traditional insurers still possess strong moat advantages, especially in counter-human nature, large complex sums, long-term trust, and intensive service needs. They can continue investing heavily to extend into physical and human relationship value, strengthening competitive edges through complex judgment, emotional interaction, strategic planning, and innovation. Meanwhile, in areas like standardization, rules, data intensity, and high-frequency repetition, they should fully incorporate technological elements to achieve high levels of AI integration.

▍ Risk factors:

• Interest rates trend downward again
• Significant stock market volatility
• Slow AI adoption and immature innovative business models among traditional insurers
• Policy tightening

▍ Investment strategy: Insurance sector remains in a major opportunity period, with AI narrative adjustments creating a right-side investment window.

Over the next 3-5 years, we believe insurance companies will continue to benefit from strict regulation and a counter-internal competition environment. The market share of the top seven firms is expected to remain concentrated. In a low-interest-rate environment, the migration of savings deposits to insurers is a win for banks, insurers, and customers. This trend is likely to persist long-term, fostering patient capital and strongly supporting the development of the stock market, bond market, and real economy.

From a policy standpoint, regulators will continue to promote better asset-liability management, advance the third phase of the solvency regime, reduce the number of small and medium insurers while improving quality, and encourage insurers to participate as strategic investors in large lock-in equity offerings of listed companies. The Southbound Trading Link is expected to increase quotas and introduce more overseas high-yield bonds into insurer portfolios. These policies will continue to catalyze the sector’s stock prices.

Looking ahead to the 2026 first and mid-year reports, based on the low base in 2025, growth in policy sales, investment income, and profits is highly certain. Recent AI narrative adjustments present a right-side investment window. It is recommended to focus on leading companies with rapid growth in new business value, stable earnings and dividends, and relatively low valuations.

(Source: People’s Financial News)