Some insurance companies have proactively lowered the guaranteed interest rate of dividend insurance to 1.25%.

Source: Securities Daily Author: Leng Cuihua

Recently, a certain life insurance company launched a dividend insurance product with a guaranteed interest rate of 1.25% (hereinafter referred to as “dividend insurance”), which has attracted significant market attention. This is because its design is below the industry standard “top limit.”

According to regulatory requirements, the maximum guaranteed interest rate for dividend insurance is 1.75%, and most mainstream products in the industry are designed at this “top limit.” Industry insiders have learned that several insurance companies currently reserve dividend insurance with a guaranteed interest rate of 1.25%, and more similar products are expected to be launched in the future.

Industry experts believe that insurance companies voluntarily lowering the guaranteed interest rate of dividend insurance is the result of the combined influence of macro interest rate environment, regulatory system, and industry operating logic.

朱俊生, Postdoctoral Fellow and Professor of Applied Economics at Peking University, told Securities Daily that from a macro perspective, China is currently in a phase of sustained decline in the long-term interest rate center. The reduction in the guaranteed interest rate of dividend insurance essentially reflects the re-matching of the guaranteed return level of insurance products with the market interest rate environment. From a systemic perspective, China has established a dynamic adjustment mechanism for the guaranteed interest rate of insurance products. The guaranteed interest rate is no longer solely anchored to administrative upper limits but is gradually forming a dynamic adjustment system linked to market interest rates.

“From the perspective of insurance industry operation logic, moderately lowering the guaranteed interest rate of dividend insurance helps reduce liability costs, enhances the long-term stability of insurance companies, and is also an important measure to prevent interest spread loss risks,” said Zhu Junsheng.

Chen Hui, Director of the China Actuarial Science Laboratory at the Central University of Finance and Economics, believes that in recent years, consumers have become more rational in their insurance product consumption. Their focus has gradually shifted from guaranteed interest rates to indicators reflecting the long-term investment ability of insurance companies, such as dividend realization rates and historical performance. Meanwhile, lowering the guaranteed interest rate can ease rigid cost burdens and leave more room for investment strategies, enabling more flexible investment approaches.

The downward adjustment of the guaranteed interest rate for dividend insurance will have direct impacts on consumers, insurance companies, and the life insurance industry, and will reshape the competitive logic of the industry, accelerating its deep transformation.

Chen Hui pointed out that the decrease in the guaranteed interest rate reduces the current liabilities cost for insurance companies. Historically, most years have seen investment returns higher than the guaranteed interest rate, so for consumers, lowering the guaranteed interest rate has a limited impact on their long-term overall returns. In the long run, dividend rates and realization rates of dividends will directly affect the difficulty of new policy sales and policyholder surrender rates, which places higher demands on insurance companies’ investment capabilities.

Long Ge, Deputy Director of the Innovation and Risk Management Research Center at the University of International Business and Economics, told Securities Daily that the lowering of the guaranteed interest rate means dividend insurance is shifting from “high guarantee + floating dividends” to “low guarantee + floating dividends.” In the medium to long term, the latter model will become the mainstream form of dividend insurance, and the guaranteed interest rate may further decline with market interest rates. This structural change means that the contractual guaranteed returns for consumers will decrease, and long-term comprehensive returns will rely more on floating dividends. This requires insurance companies to have stronger long-term investment and active management capabilities, with obtaining stable excess returns becoming key. Additionally, the stability and transparency of historical dividend realization rates will replace the demonstration interest rate as the core competitive advantage and basis for customer trust.

For the life insurance industry, Zhu Junsheng believes that the downward adjustment of the guaranteed interest rate indicates a shift in industry competition logic. Previously, competition relied heavily on interest rate levels, but in the future, the industry will focus more on comprehensive capabilities, including long-term investment ability, asset allocation, product service quality, brand strength, and sound management. In other words, the competition model in the life insurance industry is gradually shifting from “interest rate-driven” to “asset management capability-driven.”

Overall, industry insiders believe that the reduction of the guaranteed interest rate for dividend insurance by insurance companies brings liabilities closer to market interest rates, helping to prevent interest spread loss risks, and also compels insurance companies to continuously improve their long-term investment and asset management capabilities. From an industry development perspective, this change is not just a short-term marketing strategy adjustment but an important signal of the deepening transformation of the life insurance industry operating model.

(Edited by: Wen Jing)

Keywords: Insurance companies