The key factor determining the direction of insurance capital investment---What is FVOCI?
```
With the full implementation of the new accounting standards in the insurance industry, the FVOCI category is profoundly impacting the allocation pattern of insurance funds.
The team led by Sun Ting at Dongwu Securities believes that the application of this category will directly determine the volatility of insurance companies’ profit statements, thereby affecting their investment strategies and asset allocation directions.
There is no unified standard for the accounting classification proportion of insurance company assets. Each company needs to make suitable choices according to their own circumstances. Companies that require lower profit volatility may prefer to increase the proportion of FVOCI assets; companies confident in their investment ability and wishing to boost profitability through investment may prefer to increase the proportion of FVTPL assets.
Full Implementation on January 1, 2026
FVOCI (financial assets measured at fair value with changes recognized in other comprehensive income) is an asset classification under the new financial instruments standards. Together with financial assets measured at fair value through profit or loss (FVTPL) and financial assets measured at amortized cost (AC), it forms a "three-category" system, replacing the previous "four-category" model.
According to the Ministry of Finance requirements, non-listed insurance companies must implement the new standards no later than January 1, 2026. Companies with difficulty in implementation can apply to the regulator for postponement. Ping An began implementation as early as 2018, while China Life started in 2024. Currently, listed insurance companies have fully implemented the new accounting standards.
According to the standards, bonds and stocks can be designated as FVOCI assets, but funds cannot be designated as FVOCI assets. The designation of equity instruments as FVOCI is irrevocable, and cumulative fair value gains (or losses) recognized in other comprehensive income cannot be transferred back to the profit statement; only dividends and distributions can be counted as investment income.
Major Impact on Insurance Company Profit Statements
Dongwu Securities emphasizes that investment income is extremely important for insurance companies' profits.
Data shows that in the first half of 2025, the total investment income as a percentage of parent company net profit for China Life, Ping An, CPIC, New China Life, and PICC reached 192%, 194%, 260%, 163%, and 156% respectively.
Because the proportion of stock assets held by insurers is not small and their fair value fluctuates greatly, stocks under different accounting classifications can have a significant impact on year-on-year profit volatility.
Dongwu Securities points out that almost all stocks can be designated as FVOCI, but from the insurer's perspective, only stocks with sufficient dividend yield are likely to be designated as FVOCI.
For asset transitions, bonds can be reclassified, but equity assets (stocks) cannot be reclassified. Although the standards do not restrict the disposal of FVOCI assets, insurers themselves may impose some restrictions in their internal investment management policies.
Dongwu Securities states that under the new financial instruments standards, insurers face a dilemma between FVTPL and FVOCI for stock asset investments.
If the proportion of stocks classified as FVTPL is high, fair value changes will have a great impact on the profit statement;
If the proportion of stocks classified as FVOCI is high, fair value changes have limited impact on the profit statement, but insurers cannot transfer stock price gains to the profit statement.
Dongwu Securities believes that the long liability duration business model of insurers means they require a long-term stable profit statement, so naturally insurers have a need to reduce profit statement volatility. Therefore, when choosing accounting treatment for stocks, FVOCI may be a more popular choice for insurers.
If other listed companies have similar business objectives to insurers (for example, reducing profit statement volatility), then FVOCI may also be a suitable choice for stock accounting classification.
No Standard Answer for Asset Allocation
Data shows that as of mid-2025, the proportion of stock assets designated as FVOCI for China Life, Ping An, CPIC, New China Life, and PICC increased by 10.6, 5.2, 4.0, 1.9, and 1.1 percentage points respectively from the beginning of the year, to 22.6%, 65.3%, 33.8%, 18.8%, and 46.4%.
Dongwu Securities analysis believes that continuous increase of FVOCI equity by insurers is mainly based on two reasons:
First, the combination of a low interest rate environment and insufficient supply of non-standard assets leads to asset shortages, so FVOCI stocks can temporarily replace bonds; second, there is a relatively sufficient supply of high-dividend AH shares.
For bonds, as of mid-2025, the proportion of FVOCI bond assets at China Life, Ping An, CPIC, New China Life, and PICC increased by 1.8 percentage points, remained unchanged, increased by 1.8 percentage points, increased by 3.5 percentage points, and increased by 0.5 percentage points respectively from the beginning of the year, reaching 87.3%, 64.3%, 83.8%, 57.9%, and 65.6%.
Dongwu Securities believes that there is no unified standard for asset accounting classification proportions at insurance companies. Each company needs to make suitable choices based on its own situation.
Different insurers have different requirements for their own operations. Companies seeking lower profit volatility may prefer higher FVOCI asset proportions; those confident in their investment abilities and wishing to enhance profitability through investments may prefer higher FVTPL asset proportions.
Risk Warning and DisclaimerThe market involves risk, and investment should be cautious. This article does not constitute individual investment advice and does not consider the specific investment objectives, financial situations, or needs of any particular user. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their specific circumstances. Investment based on this article is at one’s own risk. ```