Insurance industry: The effects of rate cut by next year profits will fall

Beginning in 2004, in the interest rate increase cycle, the life of the deposit rate of return from 2005's 3.9 percent rise in the mid-2008 to 5.07 percent, and bond net investment yield from 4.15 percent in 2005 rose to the mid-2008 The 4.44 percent. Relative term bonds, deposits yield even more pronounced improvement was mainly due to rate increases not only the impact of incremental deposits as well as the impact of the stock (because the agreement is a floating rate deposits in general), and the interest rate on the bonds only by the impact Without affecting the volume of the stock (if the stock does not consider the change in fair value of bonds).



In the rate cut cycle, we believe that to the contrary. Assumptions in the first half of next year benchmark interest rate to 2%, we believe that the decline in deposits yield about 120bp, bond yields fell about 20bp, according to deposits and bonds in the proportion of assets that can be drawn in the first half of next year if the benchmark interest rate to 2 %, Is expected to decline in the rate of return on investment of about 50bp.



Cut interest rates on the bonds in the short term negative impact on smaller, but the low interest rate environment has been a long time, with the continued allocation of additional funds to bonds, as well as in the stock of debt after the expiry of the re-investment, bond yields will continue to be Down. We have observed in the last round of rate cut cycle, bond yields continued to be pulled down. In 2002, when 10-year bond yields have been as low as 2.72 percent, at the time due to the bear market in stocks has not been able to make a positive contribution to investment income, the insurance industry's rate of return on investment in 2003 when the minimum went to 2.68 percent.



According to the current market situation to determine next year's benchmark interest rate is likely to cut down on a cycle that is low in the vicinity of 2% level, if no obvious improvement in the macroeconomic, do not rule out the benchmark interest rate may have hit a new low. Assuming this happens in a low interest rate cycle to stay a long time, at the same time the stock market failed to clear a positive contribution, then the insurance industry's rate of return on investment is also likely to touch on the current round of economic adjustment in the 3% level. As the cost of liability is unlikely to be lower than 2.5 percent, in such circumstances, the insurance industry's rate will be reduced to a very low level. If you take into account the high interest rate policy, safety and liability Taibao costs will be higher, spreads are likely to be at a loss.



Although the stock market this year, the depth of the adjustment, but a profit report, the rights and interests of investment on the overall return on investment is a positive contribution (in addition to safety). China Life to our data, for example, the first 3 quarters of the total investment income to total 28.6 billion, with a total investment of the proceeds includes investment income, the change in fair value and impairment of assets, which we projected fixed-income asset class of investment income A total of 20.2 billion, the rights and interests of investment also contributed 8.4 billion, mainly in the first half of the reduction in the stock and fund dividends.



We visited the three companies the rights and interests of the average cost of investment, according to 2008 data to the medium-term estimates, the life, safety and Taibao the average cost is 2400, 3200 and 3280 point out that if CITIC Securities investment Country life is the average cost of 2,700 points. In the third quarter were due to the extraction of some impairment, the average cost will decline slightly. Although we believe that the performance of the stock market next year are likely to rise, but in the Shanghai Composite Index rebounded from the current location of the 60% -90% more than the cost can only exceed the cost can be released through the floating surplus to make a positive contribution to the profit report.



As the fixed-income investment category and the rights and interests of the profit contribution will likely decline, due to the addition early next year dividend funds will be little effective tax rate may increase because the fund is tax-free dividend. Generally speaking, therefore, the insurance company next year will decline in net profit (peace).



The stock market decline in the net assets of the insurance industry affected the course of the end of the basic interest rate spreads down to the erosion process has just begun, to maintain synchronization of large sectors of the city's rating.