• 2024-08-31
• News

What Sets This Round of Insurance Capital "Listing Wave" Apart?

 

A new wave of insurance capital "flag-raising" has emerged. As of now, insurance funds, mainly from small and medium-sized insurance companies, have raised flags 15 times on 14 listed companies this year, setting a new high in the number of listed companies and the number of flag-raisings since 2021, which has attracted market attention. Looking back at the development of the capital market over the past decade, the last round of "flag-raising" led by small and medium-sized insurance companies occurred in 2015. The market is highly concerned about how this round of "flag-raising" led by small and medium-sized insurance companies is different from the previous one and what impact it will have on the capital market. There are three major changes worth noting.

First, the market image of insurance capital has undergone a "gorgeous transformation". Different flag raisings have promoted the image of insurance capital in the capital market from "barbarians" to "shell pickers" for a "refresh".

Around 2015, insurance capital set off a wave of "flag-raising", and the listed companies that were flagged mostly had a relatively dispersed equity structure. Some insurance capital raised flags to gain control of listed companies and achieve cross-border operations, but it also triggered some "farce" of equity disputes, causing management chaos and performance fluctuations in listed companies.

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Now, insurance capital raises flags based on the purpose of financial investment, does not directly participate in the operation of listed companies, and has no intention of competing for control rights. Especially against the background that China's capital market needs to further strengthen long-term capital and patient capital, insurance capital continues to increase its investment in listed companies, which is not only conducive to supporting the development of the real economy but also reflects the role of the capital market as a "ballast stone" and "stabilizer". Insurance capital that focuses on long-term investment, like a "shell picker" on the beach, selects "pearls" with solid fundamentals and good development prospects from more than 5000 listed companies, and is naturally welcomed by listed companies and investors.

Second, the investment philosophy of insurance capital continues to improve. Different flag-raisings reflect that the investment philosophy of insurance capital pays more attention to stable dividends and other long-term returns.

In recent years, China's capital market construction has paid more attention to enhancing the sense of gain for investors. The regulatory authorities have made efforts to improve the investability of listed companies by encouraging and guiding listed companies to distribute dividends, repurchase, and strengthen market value management in various ways. At the same time, they have promoted long-term funds to "come willingly", "stay", and "develop well" by promoting the implementation of long-term assessment mechanisms and enriching the investment products of institutional investors. Insurance capital flag-raising also pays more attention to long-term investment returns, choosing companies with strong operational stability or high synergy with their own business. Therefore, its flag-raising targets are mainly listed companies in the fields of highways, electricity, environmental protection, medicine, etc., which have characteristics of high dividend rates, stable performance, and dividends. Looking at the source of flag-raising funds, ten years ago, small and medium-sized insurance companies mainly used insurance product liability reserves, while now insurance companies mainly use their funds, which also helps to implement the long-term investment philosophy, obtain good long-term investment returns while helping the development of listed companies.

Third, industry regulatory measures continue to be optimized, and the investment philosophy of insurance capital changes.

Ten years ago, the insurance industry had a strong scale complex, especially some small and medium-sized insurance companies used universal insurance as a "low-cost" financing tool to quickly expand scale and seize market share, and expanding aggressively in capital markets: sparking risks and controversies

Since then, the regulatory authorities have emphasized that "insurance is for insurance" and have guided insurance companies to strengthen asset-liability matching. The insurance industry has also deeply promoted transformation and development, paying more attention to the protective function of insurance, business development has become more stable, and the investment style has become more stable. Now, against the background of the gradual implementation of new accounting standards, after insurance companies flag listed companies, they will account for investments into FVOCI (financial assets measured at fair value through other comprehensive income) or account for long-term equity investments after appointing directors. The current profits of insurance companies are not affected by the fluctuations of listed company stock prices, and they can also share the investment returns brought by the growth of listed company net profits or stock dividends, enhancing the stability of insurance company profit statements. This will further encourage insurance companies to give play to the advantages of long-term funds, practice "long money for long investment", and value investment.

The continuous deepening of capital market reform, and the different insurance capital "flag-raising tide" is expected to expand the incremental funds of the A-share market, improve the situation of insufficient "long money" in the market, and help the capital market to operate smoothly and healthily. Insurance capital, as a strong and excellent "long money" force, will become an "accelerator" to help the efficient circulation of technology, capital, and the real economy, and "fuel" the two-way rush between the capital market and the real economy.

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