How much room is there for insurance funds to increase their holdings in bank stocks?

The Trend of Insurance Capital Increasing Equity Allocation is Obvious, with High Dividend Industries such as Banks Likely to be Core Beneficiary Sectors

In recent years, the pace of insurance capital allocating to stocks has accelerated. By the end of Q1 2025, life insurance and property insurance companies had invested a total of 28.2 trillion yuan in the stock market, a year-on-year increase of 44.5%, up 19.5 percentage points from the end of 2024.

In terms of scale, life insurance and property insurance companies' stock investments increased by 871.7 billion and 44.9 billion yuan year-on-year in Q1 2025, respectively, marking the highest expansion level in the past two years for both types of insurance capital investments; in terms of weight, the stock investments of life insurance and property insurance companies accounted for 8.4% and 7.6% of the total insurance capital utilization balance, respectively, with a quarter-on-quarter increase of +0.9 and +0.4 percentage points, both reaching the highest levels in the past two years.

Insurance companies prefer high dividend targets, primarily in the banking sector for stock investments. This is reflected in:

Firstly, the importance of OCI accounts as a vehicle for insurance capital equity allocation has increased. From the perspective of insurance company operations, there has been a clear trend of stock investments by listed insurance companies migrating to OCI accounts in recent years. In terms of the proportion of stock allocation accounts, by the end of 2024, the OCI stock assets of major insurance companies accounted for 28.4% of stock investments, an increase of 7.6 percentage points from the end of 2023. Among them, China Ping An has the largest OCI stock investment scale at 263.2 billion yuan, accounting for the highest proportion of 60.2% of its held stock assets; China Pacific Insurance's OCI account stock investment scale is 27.3 billion yuan, with a stock investment weight of 45.4%, up 10.1 percentage points from the end of 2023; Xinhua Insurance's OCI stock asset weight has increased the most—by 12.3 percentage points, rising to 17.9%. Overall, the OCI stock allocation ratio of major insurance companies has exceeded 30%, and there may still be some allocation space in the future.

Under the new accounting standards, based on the demand for smoothing profits, insurance capital is more inclined to adopt a high dividend strategy when allocating stocks. According to the new financial instrument standards (IFRS 9), the vast majority of stocks held by insurance companies need to be classified as "measured at fair value with changes recognized in profit or loss (FVTPL)," which causes stock price fluctuations to have a direct impact on current net profit. However, if high dividend assets with stable dividends and low price fluctuations are allocated, they can be designated as "measured at fair value with changes recognized in other comprehensive income (FVOCI)," meaning that only dividend income is recognized in profit or loss, while fair value changes are recorded in other comprehensive income on the balance sheet, thus achieving the effect of smoothing profit fluctuations. By 2023, listed insurance companies have basically implemented the new standards, and other non-listed insurance companies will gradually implement the new standards by 2026. Therefore, under the influence of the new standards, the demand for smoothing profits among insurance companies continues to exist, and high dividend investment strategies represented by the banking sector are expected to continue in the future Secondly, insurance companies primarily invest in high-dividend sectors such as bank stocks.

As of Q1 2025, in terms of holding market value, non-bank financials, banks, and utilities are the top three industries heavily invested by insurance funds, with holdings of 738 billion, 392 billion, and 41.5 billion yuan, respectively, accounting for 51.1%, 27.2%, and 2.9% of the total holding market value. Among them, the market value of insurance funds' holdings in the banking sector in Q1 2025 also increased by 3 billion yuan quarter-on-quarter, the highest among all Wind secondary industries. In terms of the number of shares held, the top three industries are banks, non-bank financials, and transportation, with the number of bank stocks held accounting for 43% of the total holdings of insurance funds, making it one of the main sectors heavily held by insurance funds. Looking ahead, under the influence of policies such as the entry of medium- and long-term funds into the market and long-cycle assessments for insurance companies, we expect the allocation of insurance funds to bank stocks to continue to increase.

Thirdly, the wave of insurance fund shareholding re-emerges, with banks as the main industry for shareholding.

This year, the frequency of insurance fund shareholding is higher than in previous "shareholding waves." Over the past decade, there have been three notable waves of insurance fund shareholding, specifically in 2015, 2020, and 2024, with a total of 116 shareholding instances in these three years, accounting for 63.7% of all shareholding instances. As of August 5, 2025, insurance funds have made 21 shareholdings, exceeding the total number of shareholdings in 2024. In terms of the distribution of shareholding targets, bank stocks have been important investment targets in the last two waves of insurance fund shareholding. For insurance funds, the dividend yield of bank stocks is superior to the yield of long-term bonds, combined with their prominent low volatility defensive attributes, which makes bank stocks continuously favored by insurance funds. Specifically, the listed banks that insurance companies have made shareholdings in this year include Postal Savings Bank, China Merchants Bank, Agricultural Bank of China, etc., mainly in H-shares.

The capital attractiveness of bank stocks remains strong

Policies continue to strengthen, and bank stocks may still be beneficiary targets.

Since the beginning of this year, multiple policies have been continuously strengthened to promote the entry of insurance funds into the market. On January 22, multiple departments jointly issued the "Implementation Plan for Promoting the Entry of Medium- and Long-Term Funds into the Market," and at a State Council Information Office press conference, it was requested that "large state-owned insurance companies strive to invest 30% of the new premiums each year in A-shares starting from 2025." On April 8, the Financial Regulatory Administration issued a notice regarding the adjustment of regulatory ratios for equity assets of insurance funds, optimizing the regulatory policy for insurance fund ratios and increasing support for the capital market and the real economy. On July 11, the Ministry of Finance issued a notice on "Guiding Insurance Funds for Long-Term and Stable Investment and Further Strengthening Long-Cycle Assessments of State-Owned Commercial Insurance Companies," which is a further strengthening of long-cycle assessments following the first implementation of a combined assessment method for the operational efficiency of state-owned commercial insurance companies in 2023 Under the support of multiple dividend policies mentioned above, low volatility, stable, and high-dividend bank stocks are likely to remain a heavily weighted sector for insurance funds in the future.

Bank stocks are stable and far-reaching, with outstanding advantages in the high-dividend industry.

A-shares listed banks are a solid "ballast stone" in China's financial market. As of Q1 2025, the total assets of the banking industry in the CITIC A-share listed secondary sector reached 314 trillion yuan, ranking first and accounting for 68% of the total assets of all secondary sectors, with a year-on-year growth of 7.5%, ranking eighth among all CITIC secondary sectors; the banking industry's profit was 0.66 trillion yuan, ranking first and accounting for 34% of the total profit of all A-share listed secondary sectors. As of August 5, 2025, the weight of the banking sector in the CSI 300 constituents was 14.9%, ranking first; there are a total of 24 companies in the CSI 300 banking constituents, with a total market value of 15 trillion yuan, ranking first.

In the context of low interest rates and "asset scarcity," the advantages of high-dividend and quasi-fixed income bank stocks are prominent. Currently, the 1-year time deposit benchmark interest rate has fallen below 1%, and the 10-year government bond yield fluctuates around 1.70%. The average redemption yield of open-ended fixed-income wealth management products in June was 2.73%. During the interest rate decline period, it is difficult to find stable and relatively high-yield assets. Coupled with favorable factors such as the realization of bond floating profits and the easing of interest margin decline, the attractiveness of the banking sector remains prominent.

Among the sectors corresponding to the "high-dividend" investment strategy, the banking sector stands out particularly. On one hand, in the high-dividend sector, banks have a significant undervaluation advantage. As of August 5, 2025, the top three sectors in the CITIC secondary industry for the 2025 dividend yield are coal, banking, and oil & petrochemicals, with dividend yields of 5.51%, 3.73%, and 3.12%, respectively. The dividend yield of the banking sector is 2.02 percentage points higher than the yield of 10-year government bonds. However, bank stocks are undervalued at only 0.77x, while the valuations of the coal and oil & petrochemical industries are 2.02x and 2.92x, respectively. In addition, the profit volatility of the banking sector is relatively small, and operations are relatively stable.

On the other hand, bank stocks generally have a larger market capitalization and relatively smaller fluctuations. The average market capitalization of bank stocks is 355.6 billion yuan, ranking first among CITIC secondary sectors. Reviewing historical periods of significant downward pressure in the A-share market, the annualized volatility of the banking sector is generally in the range of 20%-48%, the lowest among all CITIC secondary industries.

The Space for Insurance Capital to Increase Allocation to Banks Remains Large

The increase in insurance capital allocation to banks has two layers of meaning: First, the funds that insurance companies can invest (mainly sourced from premium income) are truly used to invest in bank stocks, directly bringing "real money" incremental funding to bank stocks. This mainly reflects the proactive behavior of insurance capital in increasing holdings of bank stocks. Second, there is room for improvement in the book balance of bank stocks within the balance of insurance fund utilization. This improvement may be related to the proactive increase in holdings through incremental fund purchases, as well as the passive appreciation phenomenon driven by the rise in bank stock prices.

Therefore, the space for insurance capital to increase allocation to bank stocks can be considered from two aspects:

First, the incremental funds brought by new premium investments in A-shares. At the press conference on January 23, the State Council Information Office stated that regarding the work of medium- and long-term funds entering the market, the China Securities Regulatory Commission clearly required that "large state-owned insurance companies strive to invest 30% of the newly added premiums each year in the A-share market starting from 2025." For new premiums, there is currently no clear regulatory definition, so we measure it using two criteria: total premium income and premium income after deducting insurance service fees and business and management fees, taking the five large state-owned insurance companies (China Life, PICC Group, China Pacific Insurance, China Taiping Insurance, NCI) as the calculation sample. The total premium income for these five large insurance companies in 2024, after deducting related expenses, is projected to be 22.3 trillion and 11.7 trillion, respectively, with year-on-year growth of 6.5% and 6.6%.

Based on existing data, we make the following assumptions and calculations:

(1) Assume that new premiums in 2025 will grow by 5% year-on-year. On one hand, as deposit rates continue to decline, insurance products, which combine risk protection and the advantage of locking in interest rates, remain attractive. We expect the five major insurance companies to maintain steady growth in premium income. On the other hand, the Financial Regulatory Bureau issued a notice in August last year regarding the improvement of the pricing mechanism for life insurance products, which adjusted the upper limit of the predetermined interest rate for life insurance products to enter the "2 era," potentially slowing the growth of premium income. According to the latest data released by the Financial Regulatory Bureau, the premium income of insurance companies in the first half of 2025 is expected to grow by 5.3% year-on-year, significantly slowing from 11.2% in 2024.

Considering the year-on-year growth rates of new premium income for the five major insurance companies in 2024 under the two criteria are 6.5% and 6.6%, it is expected that 2025 will continue the trend of slowing down, hence the assumption that new premiums in 2025 will grow by 5% year-on-year. Based on this assumption and the known data for 2024, the new premium income for the five major insurance companies under the two criteria will be 23.4 trillion and 12.3 trillion, respectively. If regulatory requirements are implemented, with 30% allocated for investment in the A-share market, the insurance capital entering the market in 2025 will bring approximately 701.9 billion and 368.4 billion incremental funds to the A-share market under the two criteria, respectively (2) Assuming that 20% of the funds from insurance capital entering the market are directed towards A-share listed banks. Due to the lack of publicly available details on insurance capital holdings, we provide this assumption by comprehensively considering the distribution of market capitalization and the structure of insurance capital heavy holdings.

From the perspective of market capitalization distribution: By the end of Q1 2025, the market capitalization of A-share banks accounted for 13.7%. Considering that insurance capital prefers to hold large-cap blue-chip stocks represented by banks and public utilities, the stock holdings may significantly overweight banks. If this proportion is used as the assumed value for the weight of insurance capital directed towards banks, it may be somewhat underestimated.

From the perspective of the structure of insurance capital heavy holdings: Heavy holdings of insurance capital refer to stocks that are heavily held by insurance companies, and due to the high proportion of shares held, these stocks enter the top ten shareholders of the listed company. By the end of Q1 2025, the market capitalization of banks among heavy holdings of insurance capital accounted for 27.2%. Compared to the aforementioned market capitalization proportion of A-share banks, it can be seen that there is a significant overweight of banks among heavy holdings of insurance capital. This is partly related to the conservative long-term investment style of insurance companies, and partly because bank stocks are mostly high market capitalization blue chips, which are easy to concentrate in heavy holdings. Therefore, if this proportion is used as the assumed value, it may also be somewhat overestimated.

Considering the above comprehensively, we take the average of the two proportions as a measurement indicator. Assuming that 20% of the funds from insurance capital entering the market are directed towards A-share listed banks, the incremental funds brought to bank stocks in 2025 will be 140.4 billion and 73.7 billion respectively under the two criteria. Under strong regulatory guidance, this incremental capital will grow with premium income, bringing stable and considerable capital inflows to bank stocks each year.

To compare the impact of the incremental capital scale of bank stocks obtained from the above calculations, we roughly backtrack the scale of the five major insurance companies' investments in A-share banks for 2024 using the same reasoning. The difference is that, based on the regulatory statement that "large state-owned insurance companies strive to invest 30% of the new premiums each year in the A-share market starting from 2025," the proportion of new premium income directed towards the A-share market in 2024 is likely to be less than 30%. Therefore, we estimate based on five tiers of 10%, 15%, 20%, 25%, and 30%. It can be seen that even when calculated with a relatively high proportion of 25%, the scale of incremental funds directed towards bank stocks in 2025 will still increase significantly by 29% compared to 2024.

Secondly, there is room for improvement by fully utilizing the upper limit of equity asset allocation. In April, the Financial Regulatory Administration issued a notice on "Adjusting the Regulatory Proportion of Equity Assets of Insurance Funds," simplifying the tier standards and raising the upper limit of equity asset ratios corresponding to solvency adequacy ratios for certain tiers, further expanding the equity investment space. According to the new regulations, insurance companies with a comprehensive solvency adequacy ratio exceeding 150% but below 250% at the end of the last quarter have an upper limit of 30% for equity asset allocation

As of the end of March 2025, the overall comprehensive solvency adequacy ratio of the insurance industry was 204.5%, with the comprehensive solvency adequacy ratios of property insurance companies and life insurance companies being 239.3% and 196.6%, respectively. Therefore, the theoretical upper limit for equity asset allocation for most companies in the property and life insurance sectors is 30% of their total assets at the end of the previous quarter. For some listed insurance companies with relatively high solvency ratios, the upper limit for equity asset allocation can reach 40% of total assets at the end of the previous quarter.

If equity assets are defined as stocks + securities investment funds + long-term equity investments, at the end of Q1 2025, the proportion of equity assets in life insurance and property insurance to total assets at the end of the previous quarter was 21.2% and 17.3%, respectively, indicating an increase space of 8.8 percentage points and 12.7 percentage points compared to the 30% upper limit, corresponding to an incremental equity investment scale of 27.612 billion and 3.691 billion, respectively.

Under static calculations, assuming the stock allocation ratio in incremental equity investments remains unchanged, that is, the proportion of stocks in equity assets for life insurance and property insurance remains at 39.5% and 34.3% at the end of Q1 2025, this corresponds to a stock allocation space of 1.0896 trillion and 126.6 billion, respectively. Assuming that the proportion of insurance capital held in bank stocks is 20%, then life insurance and property insurance still have space of 217.9 billion and 25.3 billion, respectively, available for bank stock allocation, totaling 243.2 billion. This result is based on static calculations from Q1 2025 data, and as the asset scale of insurance companies expands, the allocation space is expected to further open up. The market value of insurance capital heavily invested in bank stocks at the end of Q1 2025 was 392.4 billion, and if the entire incremental allocation space is used for heavily held stocks, the market value of insurance capital heavily invested in bank stocks will increase by 62% from the current level.

From the actual published data, the phenomenon of insurance capital actively increasing bank stock allocations has gradually emerged in 2025. The market value of heavily held bank stocks in Q1 2025 increased by 3.3% quarter-on-quarter. Breaking it down, the average holding price increased by only 1.2%, while the number of shares held increased by 2.1%. This indicates that the increase in the market value of heavily held stocks is mainly driven by the increase in bank stocks, which is different from the reasons driven by stock price growth in 2024.

The space for insurance capital to increase bank allocations remains large, and under the drive of funds, bank stock valuations still have room for recovery. Based on the above two calculation approaches: First, the new premiums entering the market in 2025 will provide at least 73.7 billion in incremental funds for bank stocks. If we estimate based on 25% of the new premium income in 2024 being directed to the A-share market, it is expected that the incremental funds for bank stocks in 2025 will increase by 29% compared to 2024 Secondly, in the long term, utilizing the full upper limit of equity asset allocation or at least expanding the 243.2 billion insurance capital holdings in bank stocks, based on the heavy investment in bank stocks in Q1 2025, the market value of insurance capital holdings will increase by 62%. Therefore, whether it is the new premiums entering the market under regulatory guidance or increasing the proportion of equity allocation in existing assets, there is still considerable room for insurance capital to increase allocation, which may drive the continuous valuation recovery of the banking sector.

Risk Warning and Disclaimer

The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk