Life insurance policy interest rates are set to be reduced this weekend (starting in September), leading to a wave of insurance products being discontinued.

As the adjustment of policy interest rates is imminent, how should we view the adjustment during the transition from old to new products?

How are insurance companies responding?

In the past two days, several listed insurance companies have held their mid-year performance briefings for 2024 and have responded to this issue.

With a comprehensive switch of products, what preparations have insurance companies made?

The interest spread refers to the difference between the actual returns on insurance funds and the cost of funds for policies, which is the main source of profit for life insurance companies.

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As interest rates fall, investment returns face pressure, and insurance companies face the risk of "interest spread loss".

To cope with this risk, the Financial Regulatory Authority has recently issued the "Notice on Improving the Pricing Mechanism of Life Insurance Products", which stipulates that from September 1, 2024, the upper limit of the policy interest rate for newly filed ordinary insurance products will be 2.5%, and the assessment interest rate for related liability reserves will be executed at 2.5%; ordinary insurance products with policy interest rates exceeding the upper limit will cease to be sold.

Wang Lianwen, Vice President of New China Life Insurance, said at the company's mid-year performance briefing for 2024 that after August 31, the entire market will undergo another product adjustment.

Against this backdrop, the company has established a special team led by the chairman to strengthen product adjustments in an orderly manner.

Overall, during the adjustment process, it is necessary to be precise and orderly, allowing teams and customers to dock smoothly, busy but not chaotic.

Wang Lianwen said that both the adjustment of product interest rates and the impact of the policy of reporting and implementing in unison are the joint practice of high-quality development and supply-side structural reform by regulation and the industry.

The formation mechanism of product market interest rates and the promotion of the policy of reporting and implementing in unison are conducive to reducing industry costs and are also favorable for reducing the risk of interest spread loss.

Li Mingguang, President of China Life Insurance, said that the adjustment of policy interest rates has an impact on the industry at three levels.

First, reducing the policy interest rate and the minimum guaranteed interest rate will help to promote the decline of the industry's rigid costs, promote the management of long-term interest rate risks, and the healthy development of the company.

Second, establishing a dynamic adjustment mechanism that links the policy interest rate to market interest rates is conducive to insurance companies in managing assets and liabilities, better adapting to market changes, and will have a positive and far-reaching impact on the long-term stable operation of the industry.

Third, further deepening the policy of reporting and implementing in unison is conducive to promoting refined management of the industry, saving resources, and also promoting the improvement of the management level of each company's operations.

Hou Jin, the chief actuary of China Life Insurance, said that China Life Insurance has been prepared for a comprehensive switch of products after the policy interest rate adjustment policy, including the preparation of the entire company's sales management, and will actively achieve a smooth transition of business and achieve rapid growth in the value of new business throughout the year.

Xiao Jianyou, Executive Director, Vice President of China People's Insurance Group, and President of PICC Life Insurance, said that in the first half of 2024, PICC Life Insurance attached great importance to preventing and resolving the risk of interest spread loss.

The company focused on strengthening asset-liability matching management, taking effective measures to reduce liability costs; strictly implementing the policy of reporting and implementing in unison, reducing policy cost costs; continuously optimizing the business structure, increasing the proportion of periodic premiums, and achieving rapid growth in the value of new business; strengthening business quality control, and improving the level of policy continuation rates; deeply implementing cost reduction and efficiency improvement, and achieving high-quality development.

How should the life insurance industry respond?

From the perspective of effective ways to resolve the risk of "interest spread loss", market analysis believes that in addition to reducing the policy interest rate, pursuing stable and long-term investments, and doing a good job in asset and liability matching is also crucial.

Xiao Jianyou said that PICC Life Insurance will continue to strengthen product innovation, continuously optimize the product supply structure, and help reduce liability costs.

First, strictly follow the regulatory provisions for a sound product pricing mechanism, carry out product pricing adjustments and switching work smoothly and orderly, and ensure a smooth transition of business; second, relying on the new model of "insurance + pension health services + technology", focus on serving the country's key development strategies, and focus on serving the diversified needs of customers, increase the research and development of protective and value-added product innovation, and enhance the market competitiveness of products; third, further enrich the product of dividend insurance and universal insurance, and reasonably disperse long-term interest spread loss risks through the customer benefit adjustment mechanism.

Wang Lianwen said that in the future, New China Life Insurance will still form a diversified product strategy, forming savings, dividend, universal insurance, health insurance and other products to meet the diversified needs of customers.

Against the background of product diversification, New China Life Insurance has also upgraded the "product + service" system and vigorously promoted the construction of high-end and mid-to-high-end service systems.

Regarding the specific response strategies for the future development of the life insurance industry, Li Mingguang introduced the specific approach of China Life Insurance: first, continue to strengthen the linkage between assets and liabilities, implement the concept of asset-liability management into every link of operation and management, and promote the convergence of both ends of assets and liabilities.

The company will adjust operations around long-term goals and overcome the previous business development model that only talks about business development without considering long-term risks.

Second, adhere to the customer-centric approach and continuously improve the quality and efficiency of product supply.

The company will continue to adhere to a diversified product strategy, continuously strengthen the construction of product development capabilities, continuously improve the mechanism that adapts to the market, strengthen the product management system, and improve the speed and efficiency of responding to market demand.

In addition, strengthen investment management and continuously improve the ability to invest across cycles.

Deeply implement the concept of long-term investment, stable investment, and value investment, leverage the company's strong capital strength and strong cash flow advantages, and take multiple measures to improve the level of investment and stabilize investment returns.

In addition, strengthen the transformation and upgrading of the team and adhere to cost reduction and efficiency improvement.

In the first half of this year, against the backdrop of a more complex market environment and a rapid decline in interest rates, the performance of several insurance companies' investment ends has been differentiated.

Data shows that China Life Insurance achieved a total investment income of 122.366 billion yuan, a year-on-year increase of more than 50%; New China Life Insurance achieved a total investment income of 31.613 billion yuan, a year-on-year increase of more than 40%; China People's Insurance achieved a total investment income of 29.064 billion yuan, a year-on-year decrease of about 7.7%.