Lower interest on life insurance industry would be forced to adjust their business structure

Contrast can be found in several major insurance companies, Ping An of China to cut interest rates (601,318, it shares), the largest positive impact on

From 30 on, one-year deposits, loans, a further downward adjustment in the benchmark interest rate 0.27 percentage points. We believe that the rate cut for the insurance industry in particular the life insurance industry is more harm than good, the main impact is to reduce the level of spreads; a positive impact is to improve the product mix to increase the level of profitability.

The rate cut with the biggest difference between the previous two points, first, there is no "out of charge," the impact of interest tax; second, more than three-year deposit and loan interest rates is a non-symmetric, descending far more deposits and Loans were down less. First of all, we take a look at these two points for the insurance industry.

For more attention to financial management functions of insurance products to customers, they also value the insurance product yield and bank deposits "after" comparison between the rate of return. Since the last interest rate cut by the impact of taxes, insurance costs drop to less than a matter of fact the investment rate of return drop. For insurance companies, the more narrow the spread, for the insurance companies, the negative impact of big rate cut did not last.

In addition, long-term deposit interest rates decline more than long-term interest rates drop, the insurance industry is relatively favorable. Life insurance companies are more concerned about the long-term yield, long-term deposit and lending rates of change for the life insurance companies had a greater impact. We believe that this kind of corporate debt, financing costs due to more loans made reference to the level of yield, making corporate bonds yield less than the insurance company would decrease the cost of capital reduction. As a result, the same single-rate cut from the absolute impact, the negative impact of the rate cut to less than the previous.

Overall, the rate cut will lower the insurance rate for the insurance industry in particular the life insurance industry is a bad one. For the current business, there is the risk of re-investment. As the assets of the companies for a long time period generally shorter than the balance for a long time, therefore, the existence of another investment appears to reduce the risk of spread. For new business, reduce the interest rate on short-term bank channels (3 to 5-year) financial products have a greater impact. Short-term interest rate financial products almost all the profits even more, the interest rate will reduce the impact of short-term financial products, living space, and for the impact of the largest banking channels. Rate cut would "force" the life insurance industry to adjust the structure of the business and return to protect the individual strength of a strong marketing channels in China in the peace process will reflect the comparative advantage.

From the supply point of view, the lower the profit margins will have an impact on product supply management initiative. For business banking channels have two options, first, take the initiative to extend the insurance period, in a longer period of time and spread thinner on the search for profit; second, passive defense, banking channels to reduce the operational requirements. From the perspective of demand, due to decreased spreads, the financial management of insurance products can be delivered to the customer's income is also narrowing of the yield will reduce the impact of short-term financial products.

Life insurance products will be returned to security features. On the one hand, financial product sales will be certain difficulties, the sales channels will be more inclined to turn to sell security products; on the other hand, with the benchmark interest rate cut, with 2.5 percent of the price gap between the interest rates are Reduced sales is difficult to reduce.

The three listed companies from the new single-premium structure, China's Ping An individual marketing channels for new single-premium contribution at 50 percent, while China Life Insurance (601,628, it shares) and the China Pacific Insurance (601,601, it shares) of the Ratio is 20%. As a result, the restructuring of China's less safe. In the rate cut cycle, the stock of fixed-income assets yield does not fall, the stock of assets to a large extent, the structure will affect the 3 listed companies the level of investment yield from the investment assets of the configuration of view , China Life Insurance and China Pacific Insurance to be much stronger.

For current performance, we assume that the 3 companies for the sale of Class Notes for 11 years, the types of transactions are for 8 years, the lending rate 0.27 percent decline in bond yields about 0.15 percent decline in the rate of two to cut interest rates a total of 0.3 impact %, We can see that the rate cut on the positive effects of China's largest peace.