<News Alert> NAFR released stricter rules to cool down life insurers’ open-year sales (-Ve)
- NAFR issued a notice to cool down life insurers’ open-year sales (???) and requires insurers to take further actions to control sales expenses in the bancassurance channel
- Open-year sales growth likely to slowdown in 2024, with the most impact likely on China Life (2628 HK) and PICC Life (1339 HK)
- Ping An (2318 HK) and CPIC (2601 HK) have already gradually de-emphasized open-year sales and intended to mitigate the seasonality of premium growth
National Administration of Financial Regulation (NAFR) issued a “Notice on Strengthening Management to Promote the Stable and Healthy Development of Life Insurance Businesses” to all life insurance companies. The notice provides guidance on insurers’ open-year sales practices and annual budget formulation. Insurers are prohibited from collecting premiums in advance and designating the policy effective date at the beginning of the next year, a common practice among life insurers to boost open-year premium growth. The notice also requires life insurers to take effective actions to ensure that their overall sales expenses do not exceed expenses reported to the regulator(????).
The early soft selling of open-year policies has been widely adopted by life insurers, stricter regulations on open-year sales practices are likely to slow down insures’ premium growth in 2024. We think the overall impact is controllable and distinguishable among insurers: 1) among listed life insurers, the most significant impact is likely to be on China Life (2628 HK) and PICC Life (1339 HK), as they have been more focusing on open-year sales (Fig 1), 2) the impact will be less pronounced on Ping An (2318 HK) and CPIC (2601 HK), as they’ve already gradually de-emphasized open-year sales and intended to mitigate the seasonality of premium growth, 3) stricter rules on sales expenses control may further soften sales in the bancassurance channel in 4Q23, insurers with agency strategy change underway, such as CPIC and Ping An, may stand out.
Fig 1. Open-year sales as % of total premium in FY22
