Decoding CPIC's Investment "Mindset": Where Does the Investment Performance Across Interest Rate Cycles Come From?

China Pacific Insurance's investment performance has consistently stood out in the industry in recent years, attracting much attention and curiosity.

How did they achieve this? How did they effectively respond and achieve excellent performance during a period of rapidly declining interest rates? What are the medium- and long-term asset-liability strategies and principles of China Pacific? How do they cultivate talent, build teams, and implement assessments?

At the recent China Pacific Capital Market Open Day, the company's management addressed these market concerns.

Three Principles and Three Matches of Asset-Liability

Su Gang, Vice President, Chief Investment Officer, and Financial Officer of China Pacific Insurance Group, stated in his presentation that enhancing asset-liability management capabilities is an intrinsic need for insurance companies and an external regulatory requirement. The nature of insurance funds dictates that long-term matching is a necessity; approximately 90% of insurance assets stem from policy liabilities, which have long durations and naturally require long-term management of the funding side. Therefore, the core of asset-liability management is to allocate longer-term funds to assets that can withstand shocks from interest rates, credit, and liquidity. At the same time, it is essential to manage the risks on the liability side effectively.

Su Gang also emphasized that insurance capital investment should return to the "three principles" and "three matches" of asset-liability management: adhering to the principles of "safety, profitability, and liquidity"; and implementing the three matches of "cost-benefit matching, term structure matching, and cash flow matching."

This must be based on insurance products as the starting point, achieving long-term returns that exceed the predetermined interest rate, meeting solvency requirements, creating long-term interest spread contributions, and maintaining controllable short-term volatility, while also ensuring good asset solvency without losing asset value.

Long-Term Assessment and Market Mechanism

Su Gang revealed that China Pacific is currently not only forming a methodologically based SAA management system at the asset allocation level but has also established a scientific evaluation mechanism covering long, medium, and short terms.

It is reported that China Pacific's evaluation mechanism is characterized by " long-term assessment anchoring value, market mechanism activating efficiency." The long-term assessment mechanism has been firmly implemented, with a rolling assessment period of 3 to 5 years maintained for many years, which has not only smoothed out capital market fluctuations but also achieved long-term performance that exceeds the industry average; it insists on implementing a value chain mechanism through transparent performance attribution analysis and assessment mechanisms, distinguishing the contribution needs of different clients and managers; and adheres to a market-oriented mechanism.

Yi Ping, Deputy General Manager of China Pacific Asset Management, stated that long-cycle assessment is a very important top-level design. As an asset manager, China Pacific Asset Management negotiates with internal and external clients using investment guidelines to establish market-oriented investment standards, and assesses based on a three-year assessment cycle, which is rare among insurance asset management companies that truly implement a three-year assessment.

Equity Investment Adheres to Core Dividend Value Strategy

China Pacific's equity investment performance has been outstanding in recent years. Su Gang stated that China Pacific has consistently adhered to the core strategy of dividend value, which not only has a stable effect across market cycles but is also an effective means to cope with pressure on net investment income.

At the same time, China Pacific firmly implements a "core + satellite" investment strategy, where the core dividend value strategy has a cyclical effect, and the more diverse satellite strategies can integrate China Pacific's differentiated investment capabilities into the equity asset allocation system, making the sources of investment returns more diversified and better covering the guarantee costs for clients Regarding the proportion of equity allocation, Su Gang believes it is a very scarce resource. Equity allocation consumes solvency and bears greater volatility risk. How to optimize the structure and achieve long-term sustainable balance on both the asset and liability sides is a fundamental issue that insurance companies must continue to study. In his view, the current equity allocation ratio of CPIC, combined with an optimized allocation structure, can achieve a competitive comprehensive investment return level compared to peers and will be more actively oriented towards long-term management goals.

Not Pursuing a Zero Duration Gap in Assets and Liabilities

Su Gang also stated that in the refined management of asset allocation strategies, the core of fixed income assets is duration control. The allocation ratio of long-term government bonds at CPIC has significantly increased in recent years, effectively compressing the duration gap by continuously extending the duration on the asset side.

He also believes that a smaller duration gap is not necessarily better. If one is overly focused on reducing the duration gap to zero, it actually comes at the cost of sacrificing some risk-return benefits.

Su Gang stated that the per capita client asset accumulation level in China's insurance industry is still at a relatively low range, and there is significant room for improvement in the industry in the future. It is necessary to maintain a reasonable duration gap between assets and liabilities, as this gap may help insurance companies create better long-term returns