On the evening of July 13th, New China Life Insurance Company Ltd. (ASX: 601336) dropped a profit bombshell, forecasting a significant 40% to 60% year-over-year increase in its first-half net profit attributable to shareholders, reaching a range of 20.719 billion to 23.678 billion yuan. However, just a day later, UBS poured cold water on the news by lowering its target price for the company's H-shares from HK$48.5 to HK$45.5, while maintaining a "neutral" rating.
The core concern for UBS is clear: New China Life Insurance Company Ltd.'s second-quarter new business value (NBV) growth decelerated sharply, increasing by only 8% year-over-year, a significant slowdown from the 25% growth seen in the first quarter. Under the dual pressure of new regulatory rules and a high base for comparison, growth in the second half of the year is expected to face further pressure, leading UBS to also lower its NBV forecasts for the current and next year.
A Familiar Pattern in the Market
This scenario of surging profits accompanied by valuation pressure is not uncommon in China's life insurance market in 2026. It reflects a shift in market focus from short-term profit releases to more forward-looking core metrics like new business value.
Strong Profits, Cooling Valuation
New China Life Insurance Company Ltd. expects to achieve a net profit attributable to shareholders of 20.72 billion to 23.68 billion yuan for the first half of 2026, representing a year-on-year increase of 40% to 60%. The primary driver of this growth is not an endogenous surge in policy sales but is closely tied to investment performance. The company's forward-looking equity allocation within its over 1.84 trillion yuan investment portfolio resonated with the recovery in the capital markets.
Since listed insurers fully adopted the new financial instrument standard (IFRS 9), the logic of income statement generation has changed significantly. Public data shows that by the end of 2025, New China Life Insurance Company Ltd.'s secondary market equity allocation ratio reached 21.1%, the highest among A-share listed insurers. Within this, the proportion of stocks classified under fair value through profit or loss (FVTPL) was as high as 81.4%, also ranking first. This structure means that fair value changes of a large volume of stocks directly enter the income statement, making the company's profits significantly more sensitive to equity market fluctuations compared to the old standards.
This sensitivity was already evident in the first quarter. Affected by capital market volatility at the time, the fair value change gains/losses on trading financial assets decreased year-on-year, leading to a 33.7% drop in single-quarter operating revenue to 22.13 billion yuan. Entering the second quarter, with the rapid rebound in the domestic capital market—the CSI 300 and CSI 800 indices rose 11.9% and 13.7% respectively in the quarter—the company's heavily weighted tech stocks also performed strongly. Its investment balance in hard-tech sectors like semiconductors and artificial intelligence reached 140 billion yuan, a 27% year-on-year increase.
The strong rebound on the investment side, coupled with the concentrated release of substantial dividends from high-yield stocks like banks, rapidly lifted the company's second-quarter net profit attributable to shareholders to a range of 14.22 billion to 17.18 billion yuan, representing a single-quarter year-on-year increase of 59% to 93%. It can be said that the concentrated strength on the asset side in Q2 largely offset the pressure from the liability-side transition period, resulting in the high growth of reported profits.
However, when viewing this performance, foreign institutions like UBS are focusing more on forward-looking indicators like new business value (NBV). They noted that although first-half net profit is impressive, the estimated 21-24 billion yuan range actually only sits at the lower end of the previously forecasted market growth range of 50-80%.
Of greater concern is the slowdown in liability-side growth momentum. Based on Q1 NBV of 4.655 billion yuan (a 24.7% YoY growth rate), calculations show Q2 single-quarter NBV growth has decelerated to 8%. UBS expects that in the second half, with the upper limit for dividend insurance illustration rates lowered from 3.9% to 3.5% and compounded by the high base from "sales rush before product cessation" in the same period of 2025 (which saw single-quarter new premium surge 56% in Q2 and first-half NBV growth reach 58.4%), new business value growth will face further pressure. This forms the main basis for UBS lowering its 2026-2027 NBV forecasts by 3-4% and maintaining a neutral rating.
However, the secondary market's reaction to this bearish report was not uniform. On July 14th, the day UBS released its report, New China Life Insurance Company Ltd.'s A-shares closed up 4.08%, while its H-shares rose about 6.86%. Domestic institutions and southbound capital place more weight on its relatively low valuation and the safety margin provided by its high dividend yield. As of July 13th, the closing price implied a 2026 expected PEV of only 0.61 times and an implied investment yield of about 2.53%, indicating a relatively low valuation level.
It is worth noting that behind the high dividend amount, pressure on the payout ratio due to the new accounting standards is also emerging. Although the company planned to distribute a total cash dividend of 8.516 billion yuan for the full year 2025 (a 7.9% YoY increase, with total annual dividend per share of 2.73 yuan), the cash dividend payout ratio has decreased from 30.1% the previous year to 23.5%, a drop of 6.6 percentage points.
The phenomenon of surging profits accompanied by a contracting payout ratio stems from the fact that a significant portion of the net profit consists of unrealized, non-cash investment floating gains, with actual cash flow not keeping pace. In 2025, the company's net profit attributable to shareholders grew 38.3% year-on-year, while net cash flow from operating activities increased by 15.2%, showing a clear divergence.
The proactive reduction of the dividend payout ratio is also related to the current regulatory and capital environment. With the transition period for the second phase of "C-ROSS II" ending in 2026, the immediate interest rate discounting under the new standards further increases liabilities and impacts net assets, leaving insurers generally facing multiple capital constraints: improving solvency, increasing equity allocation, and coping with low interest rates.
In this context, appropriately lowering the dividend payout ratio and retaining earnings can be seen as a forward-looking arrangement by the company to address future uncertainties and replenish capital.
Foreign Capital Exits, Domestic Capital Steps In
The experience of New China Life Insurance Company Ltd. is a microcosm of the overall trend for mainland insurance stocks in 2026. In the first half, several mainland-listed insurers presented a similar picture: a fundamental recovery, but with foreign investment banks maintaining a consistently cautious stance.
Taking PICC Group as an example, in mid-April this year, Morgan Stanley and Citigroup almost simultaneously lowered their target prices for its H-shares. Morgan Stanley reduced its target from HK$8.4 to HK$7.7, cutting its 2026 and 2027 life insurance business net profit forecasts by 13.5% and 15.8% respectively, and lowering the group's overall net profit forecasts by 6.4% and 6.7% accordingly. Citigroup lowered its target from HK$7.9 to HK$6.8, reducing its earnings per share forecasts for the current and next year by 9% and 10%.
The adjustment logic of both investment banks is essentially the same, pointing to underperformance in their life insurance business. Data shows that in 2025, PICC's bancassurance channel's first-year regular premium surged 66.3%, with the channel's share rising to 54.2%, surpassing the individual agent channel for the first time. Concurrently, the number of individual agents decreased by 7% year-on-year to 77,000. This change in channel structure, coupled with a shift from a profit of 6.5 billion yuan in Q4 2024 to a loss of 180 million yuan in Q4 2025, heightened foreign investors' concerns about the stability of its profitability.
It's not just individual cases drawing attention. After reviewing the 2025 fiscal year results, Goldman Sachs also expressed caution regarding the profit elasticity of the entire mainland insurance sector, expecting the first-half 2026 net profit of the mainland insurers it covers to decline by 8% to 55% year-on-year. It maintained a "sell" rating on New China Life Insurance Company Ltd.'s H-shares, lowering the target price to HK$37. Its focus clearly leans towards insurers with more resilient profit drivers and lower sensitivity to stock market volatility.
While views are turning cautious, some foreign capital has also reduced holdings at the trading level. Data from Hong Kong Exchanges' "Disclosure of Interests" system shows that overseas institutions, represented by JPMorgan Chase, reduced their long positions in H-shares of insurers like Ping An Insurance, China Pacific Insurance, China Life Insurance, and PICC Group multiple times in the first half of 2026. For instance, JPMorgan reduced its holding in China Life by about 14.518 million shares on March 2nd, involving approximately HK$267 million, and reduced its holding in China Pacific Insurance by 852,000 shares on June 1st.
For PICC Group and PICC Property & Casualty, JPMorgan downgraded its rating from "overweight" to "neutral" at the end of March, explicitly advising investors to "take profit on strength" (believing the non-life underwriting cycle had peaked). It subsequently reduced its holdings in PICC Group by 6.276 million shares and twice reduced its holdings in PICC P&C by a cumulative total of over 17.59 million shares, lowering its long position ratio to 8.93%. Even for Ping An Insurance, which it maintained an "overweight" rating on, tactical reductions occurred, with its shareholding ratio gradually decreasing from 8.77% to 7.97% (average selling price around HK$59.88).
However, this series of reductions cannot be simply interpreted as indiscriminate bearishness. It reflects more of a tactical rebalancing by foreign capital based on asset allocation logic. On one hand, some mainland insurance H-shares had seen considerable gains earlier (e.g., the property & casualty insurance sector rose approximately 1.4 to 1.7 times over the past four years), and foreign capital chose to realize profits after valuation recovery. On the other hand, for insurers like New China Life Insurance Company Ltd. whose profits are highly correlated with capital market volatility, global macro funds are naturally wary of high-volatility equity assets and tend to reduce positions during rebounds to control drawdowns.
Meanwhile, mainland capital is forming a relay. In the first half of this year, a trend of "mutual buying" among insurance funds in H-shares has emerged. A typical case is Ping An Insurance investing nearly HK$18 billion to increase its stake in China Life's H-shares by about 600 million shares (raising its shareholding ratio to 16.02% in May). This change in holdings, characterized by "foreign capital exiting, domestic capital entering," is gradually altering the shareholder structure of mainland insurance H-shares.
Rule Changes Accelerate Reshuffling
The widespread concern among foreign investors about the prospects of the life insurance liability side stems from a series of regulatory tightening measures concentrated in the first half of 2026.
On March 27th this year, the Life Insurance Department of the National Financial Regulatory Administration issued the "Notice on Further Strengthening the Management of Bank Agency Channel Expenses," extending the "unified reporting and execution" requirements for the bancassurance channel from controlling commissions to managing the overall expense structure.
The notice clarified that insurance companies must not use surplus expenses to pay bancassurance specialist salaries, nor can they pay channel fees under the guise of policy issuance fees, information fees, or technical service fees, effectively blocking the long-existing practice of "off-book" payments.
The impact of the policy began to show even before its official implementation. Before the new rules took effect on July 1st, the bancassurance channel noticeably cooled down. Industry exchange data shows that the year-on-year growth rate of new single-premium scale in the bancassurance channel for the first five months rapidly fell from around 28% in Q1 to less than 7%, and the growth rate of new single regular premiums also dropped from 19% to around 10%. The direct cause of this change was the significant reduction in sales motivation among bank frontline staff after the elimination of "off-book" payments, coupled with the partial release of client demand in Q1 due to "sales rush before product cessation," leading to short-term pain in the bancassurance channel.
During the same period, to prevent interest spread loss risks, regulators also lowered the upper limit for dividend insurance illustration rates from 3.9% to 3.5%. Against the backdrop of low interest rates and an asset shortage, life insurance companies are shifting their product logic from emphasizing "savings substitution" in the past to a structure focused on "long-term protection plus stable dividends."
While beneficial in the long term, in the short term, the decline in guaranteed and illustrated rates weakens product attractiveness, directly lowering the new business value margin per policy. Combined with the extremely high base formed in the same period of 2025 due to "sales rush before product cessation," growth in life insurance new business value faces more pronounced pressure in the second half of the year.
Amid the trend of fee transparency, market differentiation is increasing, with the Matthew effect becoming more prominent. The decline is not universal. Leading insurers, leveraging their system integration capabilities, brand strength, and relative advantages on the investment side, are better positioned to stabilize their situation. According to industry exchange data, the combined share of regular premiums for the "top seven" insurers in May was close to 40% of the total industry exchange volume, with Ping An and China Life maintaining relatively high bancassurance channel growth rates. For small and medium-sized insurers, with fixed costs difficult to amortize and insufficient resource exchange capabilities, their front-end competitiveness has noticeably declined after the traditional fee-driven model was disrupted, significantly squeezing their survival space.
The seemingly contradictory signals of a profit alert and a downgrade report point to the same underlying reality: the asset side has delivered performance, while the liability side remains under transformation pressure. The divergence between domestic and foreign capital essentially reflects different weights assigned to these two aspects.
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