Third-quarter stock market swings pushed the long-simmering dilemma facing insurance capital into full view.
Under the new accounting standards, market volatility flows straight into net profit: low interest rates demand heavier equity allocations, yet high volatility can easily rattle current-period earnings.
"The market pullback caught us off guard, and everyone is under enormous pressure," one insurance company investment manager lamented. Insurance capital that had booked handsome gains in the second quarter saw a sharp reversal in the third.
Over the third quarter, the Shanghai Composite Index fell from 4,094.40 points at the start of the period to 3,842.19 points by the end, while the CSI 300, ChiNext Index, and STAR 50 dropped 12.49%, 27.80%, and 30.7% respectively during the quarter.
This rapid pullback, which exceeded the boundaries of常规 stress tests, directly shattered the return balance that insurance funds had previously constructed.
The impact of market swings was fully reflected in the latest third-quarter reports: in the first three quarters of this year, the five A-share listed insurers together posted attributable net profit of 276.577 billion yuan, down 35.08% year-on-year, with a combined attributable net loss of 40.810 billion yuan in the third quarter alone.
The equity market pullback directly caused a phased reversal in insurance investment income, with the net profit declines of listed insurers ranging between 20% and 47% in the first three quarters.
An industry investment professional revealed that mainstream domestic insurers currently hold their main positions in dividend sectors, with overall allocations to technology sectors relatively low. Even so, the third-quarter decline in technology stocks still clearly dented portfolio returns.
By his calculation, if dividend assets make up more than half of an insurance portfolio and technology assets are held at 10%-15%, a single-quarter drawdown of 30% to 40% in the tech sector alone would quickly erode profits.
When a portfolio's overall absolute return rapidly approaches zero, many insurance accounts that target absolute returns are forced to trigger passive stop-loss procedures.
Under the new accounting standards, stock market fluctuations flow directly into insurers' current-period net profit statements, bringing the "dilemma" facing insurance capital to the surface: a low-rate environment requires thicker equity holdings to cover rigid liability costs and fill return gaps, but the high volatility of equity markets is reflected directly in current-period profits through reporting rules, dealing a direct blow to earnings stability.
With long-term rigid return requirements on the liability side and hard-to-predict market swings on the equity side, insurance equity allocation is entering a new phase in which the logic of balance must be recalibrated.
An investment head at a large listed insurer suggested that in a low-rate environment, insurers can effectively defuse spread losses by strengthening asset-liability management, and do not necessarily have to ramp up equity investment. Moreover, market volatility is both a challenge and an opportunity. As long as direction can be judged relatively accurately and position adjustments are well timed, it can have a positive effect on current-period profits.
Zhou Jin, lead partner of Tiantian International's financial industry consulting practice, proposed that insurers need to hedge volatility through diversified equity allocation. They should adhere to long-term, value-oriented, and prudent investment, and smooth profit fluctuations through dividends, high-dividend foundational holdings, long-term equity investments, and increased allocation to FVOCI (fair value through other comprehensive income).
At the same time, they should strengthen the matching of asset-liability duration and cost-return. Leveraging the opportunity to implement new regulatory rules on asset-liability management, they should upgrade governance models and technical capabilities, compress effective duration gaps, balance cash flow and returns, and uphold strategic, holistic, and cyclical perspectives to achieve dynamic balance in asset-liability management.
At the accounting policy level, he suggested that against the backdrop of full IFRS9/17 implementation, consideration be given to introducing counter-cyclical adjustments in asset impairment and reserve provisioning, improving guidance on the transition and disclosure between old and new standards, and pushing for convergence between the liability valuation curves/interpolation methods used for accounting and solvency purposes, so as to reduce conflicts in the indicator system when companies manage multiple objectives.
Single-quarter loss exceeds 40 billion yuan. 317.387 billion yuan: that was the combined net profit of the five A-share listed insurers in the first half of this year, up 78.12% year-on-year, setting a new high on top of the already elevated base from the same period last year.
Just one quarter later, however, the deep equity market pullback reversed the earnings trajectory: the five A-share listed insurers saw net profit fall 35.08% year-on-year in the first three quarters, with a combined attributable net loss of 40.810 billion yuan in the third quarter.
Breaking it down, China Life Insurance (601628.SH, 2628.HK), PICC (601319.SH, 1339.HK), and New China Life Insurance (601336.SH, 1336.HK) posted third-quarter losses of 45.059 billion yuan, 4.928 billion yuan, and 511 million yuan respectively, while Ping An Insurance (601318.SH, 2318.HK) and China Pacific Insurance (601601.SH, 2601.HK) stayed profitable in the quarter, with attributable net profit of 4.060 billion yuan and 5.628 billion yuan respectively.
Under the new accounting standards, a large volume of equity assets is classified as FVTPL (fair value through profit or loss), so stock market volatility flows directly into current-period net profit. The cross-period smoothing space under the old standards, where "unrealized gains or losses do not affect profit as long as they are not sold," has completely disappeared.
Huatai Securities noted in a research report that since the new accounting standards took effect in 2023, quarterly profit volatility at listed insurers has increased markedly and shown a strong correlation with equity market performance. Particularly in quarters when the equity market surges or pulls back sharply, investment income volatility is transmitted more directly to current-period profit, significantly raising the quarterly volatility of insurers' earnings.
At the same time, listed insurers have continuously increased their allocation to equity assets, with equity allocations reaching historic highs.
According to detailed data disclosed in financial reports, the five A-share listed insurers recorded a combined fair value change loss of 354.766 billion yuan in the third quarter. Among them, China Life, Ping An, New China Life, China Pacific Insurance, and PICC posted fair value change losses of 186.972 billion yuan, 90.059 billion yuan, 32.871 billion yuan, 27.5 billion yuan, and 17.364 billion yuan respectively.
In the first half of this year, however, the combined figure for this indicator at the A-share listed insurers was a gain of 173.785 billion yuan, creating a swing of more than 500 billion yuan between the two quarters.
A veteran insurance investment officer believes the above data shows that the insurance industry's equity asset allocation ratio is relatively high, and when unexpected volatility hits, unrealized gains on bond assets are hard to offset the damage.
Fair value change gains or losses are essentially the book gains or losses formed after insurers mark their stocks, funds, and other holdings to market, and are recorded directly in the current-period income statement. But they are "unrealized" gains or losses, affecting profit even without a sale, yet not equal to actual losses or gains.
Zhou Jin pointed out that the profit volatility at listed insurers this round reflects more the short-term fluctuations of market prices than any fundamental change in their operating fundamentals. A large part of this round's swings is still unrealized "paper gains and losses," and some of the "shrunk" profit has not disappeared but has been transferred to OCI (other comprehensive income) or net assets, which does not mean investment capability or underwriting quality and efficiency changed by the same magnitude.
The non-bank financial chief analyst team at Soochow Securities, led by Sun Ting, also made clear that "short-term accounting profit cannot reflect the essence of an insurer's operations," and that excluding equity market volatility, the operating profit disclosed by listed insurers all maintained growth.
In the first three quarters of 2026, Ping An and China Pacific Insurance reported attributable operating profit of 125.905 billion yuan and 30.081 billion yuan respectively, up 8.3% and 5.6% year-on-year. China Life also disclosed that its net profit in the first three quarters, excluding the impact of short-term fluctuations such as public market equities, was 94.220 billion yuan, up 15.8% year-on-year.
Insurance capital's dilemma: adding equity exposure versus profit volatility. A chill on the investment side was a major factor behind the decline in net profit at A-share listed insurers in the first three quarters.
In the first half of this year, buoyed by a recovery in the equity market, the five A-share listed insurers enjoyed a profit feast. After entering July, however, technology sectors such as AI (artificial intelligence), semiconductors, and optical modules continued to pull back, compounded by declines in major indices including the CSI 300 and ChiNext, directly hitting listed insurers' investment income.
In October, that trend persisted. Based on disclosed investment income data for the first three quarters, China Life and New China Life posted annualized total investment yields of 3.23% and 3.5% respectively, down 3.19 percentage points and 5.1 percentage points year-on-year; PICC and China Pacific Insurance posted non-annualized total investment yields of 3.5% and 2.5% respectively, down 1.9 percentage points and 2.7 percentage points year-on-year; Ping An's non-annualized comprehensive investment yield was 2.3%, down 3.1 percentage points year-on-year.
In the first half of this year, when the equity market warmed, New China Life's annualized total investment yield reached as high as 6.7%, up 0.8 percentage points year-on-year; China Life's annualized total investment yield was 5.58%, up a hefty 2.29 percentage points year-on-year; PICC and China Pacific Insurance posted non-annualized total investment yields of 3.7% and 2.4%, also up 1.1 percentage points and 0.1 percentage points respectively year-on-year.
Zhou Jin analyzed that the equity market pullback reversed investment income. Insurer profit consists of two parts: "insurance service performance plus investment performance," with investment performance rising and falling with the equity market and being the main source of volatility. In the third quarter of this year, major A-share broad-based indices weakened notably, with the CSI 300 and other key indices falling by double-digit percentages, while STAR and ChiNext boards pulled back even more deeply, with most losses entering the current-period income statement directly as fair value change losses.
In recent years, listed insurers' trading-oriented equity exposure has continued to rise, and the stock market volatility in the first three quarters, combined with high equity positions, systematically amplified the impact on current-period profit.
Looking at this year's overall capital market performance, one investment professional said that as far as he knows, some private funds were up close to 50 to 60 percentage points at their best this year, but as of late October, even better-performing private funds were basically flat, with the average private fund down about 15 percentage points this year.
Similarly, insurance capital went through an anxious period between July and October. A low-rate environment demands more equities to thicken returns, but the high volatility of equities can easily hit current-period profit, a difficulty that must be confronted by anyone in this investment game.
Su Gang, vice president and chief financial officer of China Pacific Insurance, said at a results briefing that under a prolonged low-rate environment, insurers' fixed-income investment is under sustained pressure, and moderately increasing equity allocation to raise net investment yield and hedge fixed-income pressure is an inevitable choice. But how to control volatility and avoid excessive shocks to short-term performance is an extremely challenging task.
In October this year, Liang Hong, founder of Xihua Private Fund, said in a weekly report that a major insurance asset management firm bought a large amount of technology stocks at highs in July but sharply cut positions to stop losses in late September. The ensuing discussion quickly fermented in investment circles.
In response to those remarks, an investment head at a large listed insurer said at the time that the claim of "massive buying and sharp reduction" was exaggerated. Industry investment professionals also said that many insurers have been adding high-dividend stocks this year, while most have not significantly increased growth-stock allocations. When the overall market sees some volatility, positions are adjusted moderately, and in September some insurers did not move overall positions much due to solvency constraints or losses.
Zhou Jin suggested further improving and implementing the long-cycle assessment policies of the Ministry of Finance and financial regulators, guiding insurance funds to act as long-term capital and patient capital, and promoting them to more institutions through regulatory evaluation systems and industry association guidance and initiatives, while further incorporating long-term investment returns and long-term dividend rates into the assessment framework.
At the same time, on the basis of the extension of the second-phase transitional period of the solvency regime and the "one company, one policy" approach, consideration should be given to introducing counter-cyclical adjustment factors, optimizing the discount rate curve, appropriately relaxing the cap on future policy surplus included in core capital, and optimizing equity investment risk factors to favor long-term holdings and national strategic investments, thereby reducing pro-cyclical shocks.
Responding to volatility, insurance capital anchors on high-dividend assets. The sharp swings in listed insurers' profits caused by the third-quarter equity market pullback sounded a warning for the industry. How to balance the long-term returns of equity allocation with short-term performance shocks has become a question the industry must confront.
Since 2023, listed insurers have implemented the new accounting standards, and in 2026 non-listed insurers will be included, completing the industry's official switch between old and new standards. Under the new standards, equity market volatility will directly affect the income statement.
Huatai Securities calculated that by the end of the first half of 2026, the average allocation ratio to FVTPL stocks and funds at listed insurers had risen to a historic high of 13.0%, compared with 9.7% in the same period of 2025, with stocks plus funds totaling about 19.4%.
Equity exposure at historic highs means that when indices pull back, the sensitivity of the income statement is amplified accordingly. "One of the original intentions of the new accounting standards is to avoid allocating to high-volatility assets as much as possible," one senior industry investment professional said, noting that foreign insurers' investment performance has trended toward stability in recent years, with a common feature being equity allocations kept within a reasonable range.
Insurers should pay more attention to asset-liability management, and the proportion of equity assets should be linked to indicators such as net assets, solvency, and risk appetite. They need to strictly observe the rules of major asset allocation rather than pursue steady returns through short-term speculation.
On equity investment, the general manager of an asset management equity investment department believes that while pursuing absolute returns and excess returns, it is necessary to focus on controlling portfolio drawdowns. A "core plus satellite" strategy in equity investment can balance offense and defense to a certain extent: allocate most of the position to assets with higher certainty and lower volatility (such as major broad-based indices, cash-flow assets, and core assets capable of crossing cycles) to achieve medium returns with medium-low risk; allocate part of the position to high-growth areas such as technological innovation and new quality productive forces to position for industry trends and enhance portfolio elasticity, achieving medium-to-high returns with medium risk.
In actual allocation, attention should first be paid to balance across instruments, prioritizing stocks, while building a reservoir through funds to achieve effective complementarity between the two. Second, industry balance should be considered, avoiding overconcentration in any single industry to prevent sharp portfolio swings caused by policy and industry cycle fluctuations. At the same time, style balance should be emphasized, paying attention to rotations among value and growth, quality and cyclical, and large-, mid-, and small-cap styles to improve the portfolio's ability to adapt to the market.
Where will insurance capital go next? Industry insiders say that considering market volatility and new asset management rules, high-dividend stocks are the direction insurers prefer for allocation.
PICC's management said that next it will steadily increase OCI stock investment on the equity side to enhance stable return contributions such as dividend income, while reasonably allocating the ratio between OCI and TPL (fair value through profit or loss) assets to smooth investment-side performance volatility.
Su Gang said China Pacific Insurance's equity allocation will, under the premise of conforming to the long-term appropriate range of its current strategic allocation, steadily optimize tactical allocation space by account and in a measured rhythm, rather than taking excessive one-sided aggressive actions, so as to better balance returns, volatility, solvency, long-term return levels, and challenges facing current-year financial statements. Only in this way can equities provide the overall asset allocation with a more sustainable level of good returns that fully cover long-term liability costs.
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