Small and Mid-sized Insurance Funds Reducing Holdings Causing Sharp Decline? Multiple Parties Deny, The Truth Is......

“Small and medium insurance companies are really taking the blame.” On March 20th, an insurance industry insider commented on a widely discussed analysis.

Regarding the recent decline in the A-share market, some market analysts attribute the main cause to the reduction of holdings by small and medium insurance funds. They believe that under the full implementation of the second-generation solvency regulation and the recent simultaneous decline in stocks and bonds, small and medium insurers face solvency pressure at the end of the quarter and reduce holdings, including in annuities. This explanation quickly gained widespread attention in the capital market.

However, reporters from CICC Securities have learned from industry insiders and research institutions, including non-bank teams listed in New Fortune, that the recent market decline is unlikely to be primarily caused by insurance capital.

An insurance industry insider explained the quarter-end operational behavior of small and medium insurers and its true impact. He stated that most small and medium insurance companies have some pressure on their solvency, and the risk factors for equity asset solvency are high, requiring more minimum capital. Therefore, some companies appropriately reduce equity holdings at quarter-end to release capital and improve solvency levels. “But overall, the recent market correction hasn’t been too large, and the impact has been minor.”

Several research institutions have also analyzed data and survey information from multiple angles to clarify or deny that insurance capital is the main reason for the recent market decline.

The non-bank team at Dongwu Securities provided three reasons:

1. The rumored new solvency regulation has not yet been implemented. The transitional policies of the second-generation solvency regulation (phase two) that have already been in effect are expected to end, but the phase three policies based on new accounting standards are still in testing and have not been implemented, so they will not affect insurance capital behavior.

2. Some small and medium insurers have indeed reduced holdings, which is normal and has little overall impact on insurance capital. The insurance industry is highly concentrated, with large leading companies holding most of the investment assets and maintaining stable operations and investments. While some small and medium companies are reducing holdings due to solvency pressures, this is normal industry behavior, and their share of total funds is very low, making it unlikely to significantly influence the stock market.

3. The industry’s overall liabilities are increasing with large incremental funds, and insurance capital is increasing its holdings more than reducing them. By 2025, the insurance industry’s investment assets are expected to grow by 5 trillion yuan. Since 2026, under the background of “deposit relocation,” new insurance premiums have shown impressive growth, resulting in a substantial increase in new premiums and sufficient new capital supply. The team estimates that the scale of insurance capital increase exceeds that of reductions, and the market decline is not the main cause.

Hua Chuang Financial Team straightforwardly stated that the decline should not be blamed on small and medium insurers. They analyzed from three perspectives:

1. Information-wise, equity holdings are more concentrated in large and medium insurers because these companies have stronger solvency and regulators have been clearly guiding long-term capital into the market. According to their frequent surveys, since the beginning of the year, there has been no obvious reduction in holdings by large, medium, or small insurers; some institutions have even slightly increased holdings.

2. Policy-wise, the second phase of the second-generation solvency regulation was announced at the end of 2021, with a three-year transition period (2022–2024) during which regulatory authorities provided relaxed policies to enhance solvency. The extension to 2025 was also announced. Since then, regulators have not issued any new directives to extend the transition period, so the industry has already prepared mentally, and a sudden sell-off of equities due to recent assessments is unlikely.

3. Trading-wise, the team estimates the total stock market size at about 3.5 trillion yuan, with large leading companies holding around 3 trillion yuan, and small and medium companies about 500 billion yuan. The proportion of companies with solvency issues that might sell stocks is very low. Even in an extreme scenario where 10% of holdings are sold (about 50 billion yuan), this is significant but not enough to explain the recent market decline, considering the daily market turnover exceeds 2 trillion yuan since February 28th.

The non-bank team at Zhongtai Securities analyzed recent stock and bond market fluctuations and their impact on insurance capital. They noted that early last year, the China Securities Regulatory Commission encouraged large state-owned insurers to allocate 30% of their annual new premiums to A-shares. Their estimates suggest that by 2025, insurance funds’ equity investments could increase by nearly 1.6 trillion yuan. Based on index fluctuations, about two-thirds of this increase is attributed to market value gains, and one-third to active portfolio adjustments. Under neutral assumptions for 2026, the estimated incremental funds amount to about 713.3 billion yuan.

Regarding concerns about small and medium insurance institutions’ behavior, they analyzed data from a large life insurance company, which disclosed that a 10% decline in the fair value of equity assets would impact the core solvency ratio by about 8.7 percentage points. As of the end of Q4 2025, the average core solvency ratio in the life insurance industry was approximately 115% (regulatory minimum is 50%). Objectively, some small and medium insurers may face certain performance pressure, but considering the second-generation solvency regulation’s countercyclical adjustment factors for stock investment risks, the impulse to chase gains and sell off is reduced.

The Zhongtai non-bank team believes that for large and medium insurers, which account for over 70% of the funds and have already adopted the new standards by the end of 2025, the actual pressure to reduce holdings is not significant.

Layout: Liu Junyu

Proofreading: Wang Wei