The ongoing surge in insurance capital investing in real estate reflects a significant shift in the financial landscape, with New China Life Insurance taking a leading roleRecently, they acquired twelve properties from Wanda Group, indicating a broader trend in the insurance industry toward securing tangible assets in an environment characterized by low-interest rates and a scarcity of profitable investment opportunities.

Acquiring real estate has become an unspoken agreement among insurance companiesNew China Life’s aggressive purchasing of properties, particularly from Wanda, is not an isolated case but part of a larger industry movement seeking quality real estate to bolster their long-term financial stability.

Just in the last few weeks, New China Life has taken over additional assets from Wanda, increasing their total to eleven properties

Advertisements

This trend showcases how the entire insurance sector is scrambling for high-quality real estate as a secure investment strategy.

Moreover, beyond direct property acquisitions, insurance capital is also exploring investments through public Real Estate Investment Trusts (REITs) and Asset-Backed Securities (ABS) as alternative avenues for engaging with real estate markets.

Historically, insurance companies have struggled with mismatched assets and liabilitiesThis issue is evidenced by the rapid growth of premium income in the last two years, where the impulse to expand liability sides has not matched with proportional asset accumulation, leading to significant pressure from interest rate spreads.

In light of this mismatch and the current low-interest climate, increasing yields on investments has become a crucial strategy for managing the risks associated with interest rate discrepancies

Advertisements

The consensus among insurance capital managers is that incorporating real estate, known for its stable long-term returns, is a sound investment strategy.

A Frenzy for Real Estate

Insurance funds are seriously boosting their investments in real estate.

With substantial financial resources, insurance companies are progressively increasing their stakes in real estate assets.

Recently, on January 10, Kunhua (Tianjin) Equity Investment Partnership (Limited Partnership) became the sole shareholder of Tongling Wanda Plaza Investment Co., Ltd

Advertisements

The previous owner, Dalian Wanda Commercial Management Group, has withdrawn from this investment.

On the same day, the insurance company also took over Xuancheng Wanda Plaza Investment Co., Ltd., another asset under Dalian Wanda Commercial Management Group.

The principal investor behind this partnership was New China Life InsuranceEarly last year, they announced a collaboration with CICC Capital to establish a joint fund, with a total fund size of 10 billion yuan, wherein New China Life planned to invest 9.999 billion yuan.

According to their announcement, the investment strategy for this partnership focuses mainly on equity investments and other legal means, targeting investee enterprises holding substantial real estate assets to generate returns for partners.

Since early April last year, this partnership has rapidly acquired properties lent by Wanda

• Microsoft's Q2 Performance Highlights Potential
• Witnessing History: Gold Breaks $2900!
• Active Cross-Border ETF Trading
• US Inflation Remains Above Target
• South Korea Ups Biopharma Investment

Currently, they own eleven assets in major cities such as Beijing, Nanjing, Chengdu, and Yantai, indicating a vigorous expansion into the real estate sector by New China Life.

Public records indicate that from 2023 to 2024, insurance capital has acquired at least 19 Wanda PlazasAlongside New China Life, significant players include Sunshine Insurance, Dajia Insurance, Taiping Capital, Bank of China Samsung Insurance, and Hengqin Life Insurance, showcasing a collaborative industry move toward real estate investment.

Sunshine Life, second to New China Life in terms of property acquisitions, secured six Wanda properties through the Lishui Lianrong Equity Investment Partnership.

Additionally, other major life insurance firms, including China Life, China Postal Insurance, Ping An Life, and Great Wall Life, have also invested in large shopping centers, office buildings, and logistics parks located in desirable areas.

In terms of investment volume, Taikang Life acquired several commercial real estate projects in 2024, including six assets across Xuzhou, Langfang, Jiaxing, Suzhou, and Dongguan, totaling approximately 349,600 square meters, with overall transaction costs exceeding 2 billion yuan

They have also invested around 5.685 billion yuan into the office project at the Green Land Bund Center in Shanghai’s Huangpu District.

Moreover, Ping An Life has historically been a major player in the real estate sectorBy June 30, 2024, its real estate investment balance reached 207.425 billion yuan, accounting for 4% of its total investment assets, with 79.1% allocated to property-related investmentsIn 2024, Ping An Life made additional investments in the D-03 and D-04 real estate projects in Beijing's Lize Business District, totaling around 7.381 billion yuan.

"Competing for Public REITs"

Investing in real estate is just one strategy for insurance capital.

As the industry evolves, today’s insurance firms are diversifying their approaches to real estate investment, including substantial allocations to public REITs and ABS projects.

Since June of last year, the Shanghai Stock Exchange has continuously reviewed ABS backed by real estate

Unlike traditional ABS, these real estate-backed securities are based on properties held as core assets, and can be standardized and traded on the exchange, ensuring compatibility with public REITs.

From the revenue perspective, insurance capital can utilize this strategy to activate existing assets, generating cash flow from the underlying assetsMoreover, in ABS projects, insurance asset management companies act as trustees or objective managers, earning management fees from their roles.

However, at this moment, the overall scale of ABS projects is modestAs of January 15, five insurance asset management companies have collectively filed 11 ABS projects, totaling about 19.44 billion yuan

All five companies have received approval for their respective projects.

Notably, Taiping Asset has submitted the most applications, with four ABS projects approved or under review by the Shanghai Stock Exchange, totaling 6.2 billion yuanChina Life Asset (through its subsidiary) and Taikang Asset have each applied for two projects totaling 2.51 billion yuan and 3.469 billion yuan, respectively, while Ping An Asset has submitted one application for 726 million yuan.

Among them, China Life Asset and Taikang Asset each have one project filed with the Shenzhen Stock Exchange, while the others have submitted theirs to the Shanghai Stock Exchange.

Beyond ABS projects, insurance capital is also actively investing in public REITs.

Reports indicate that China Life has participated in strategic placements for 21 public REITs, covering various sectors such as commercial real estate, affordable housing, energy infrastructure, highways, industrial parks, and other industries

Their involvement primarily involves utilizing entrusted funds and self-owned capital to establish REIT funds.

According to market research, as of the 2024 mid-year disclosures, the positioning value of insurance capital reached 3.637 billion yuan, comprising 29% of the top ten shareholders' market cap.

Analyzing specific actions, the Zhaoshang Expressway REIT listed on November 21 of last year, with China Life, Ping An Life, Zijin Property Insurance, and China Life participating as strategic investors, acquiring 7.15 million, 14.25 million, 7.1 million, and 39.85 million shares, respectively.

On the same day, the Yin Hua Shaoxing Water Resources REIT was listed, with China Life, Zijin Property Insurance, Ruizhong Life, and products under Life Insurance Asset Management holding 7.32 million, 1.8 million, 1.8 million, 1.08 million, and 2.22 million shares respectively.

Additionally, among the latest listings, the Huazheng Waigaoqiao Storage Logistics REIT issued its strategic investment list, which included institutions such as Pacific Life and Taikang Life.

The Motivation Behind Substantial Investments

Insurance capital is fully engaged in a battle for high-quality real estate

The underlying motivation for these significant investments is that real estate allocations aid insurance companies in efficiently matching their assets with liabilities, while also hedging against financial market volatility.

From a macroeconomic viewpoint, the benchmark ten-year treasury yields have plummeted to around 1.6%. As a cornerstone of financial market interest rates, these yields serve as a critical reference for pricing numerous financial assetsThis decline implies that the yields from insurance capital's fixed-income asset allocations cannot adequately cover liability costs.

Moreover, reports suggest that the net profits of the insurance sector have seen three consecutive years of decline since 2021. In 2023, due to falling interest rates prompting higher insurance reserves and poor-performing investments, profits in the industry faced widespread reductions.

Although the forecasted interest rate for insurance products may decrease to as low as 2.34%, insurance companies still grapple with interest rate losses

This situation underscores the urgent need for insurance capital to enhance their asset-side profitability.

Consequently, investing in real estate has emerged as one of the optimal choicesResearchers from China Life Investment Insurance Asset Management previously published an article suggesting that the expected total investment returns for office, retail, and logistics sectors in first-tier cities are projected at 5.7%, 6.5%, and 7.6%, respectively, while for second-tier cities, the forecasts are 6.5%, 5.9%, and 7.2%.

In addition, in a low-interest-rate environment, REITs, known for their stable and high dividend yield, have also attracted significant attention from insurance investors.

Fund manager Sun Lei from Ping An noted that with declining interest rates and the drop in treasury yields, more funds are gravitating toward public REITs

Furthermore, new accounting standards have made it such that funds no longer assess profits based on secondary market valuations of REITs, bolstering the inclination for long-term holdings of public REITs.

It is well-known that REITs inherently offer dividend payoutsAccording to research from Guojin Securities, compared to mainstream stock indices and fixed-income products, the dividend characteristics of REITs are significantly more pronouncedThe average dividend yield for REITs associated with franchise rights in 2023 reached 6.7%, notably higher than the corresponding yield of major stock indices during the same periodIn contrast, the average dividend yield for property types of REITs was at 4.2%, stronger than CSI 300 (3.2%) yet slightly lower than the Shanghai 50 (4.4%). When compared to 1-year AAA (2.6%) and AA+ (2.7%) rated short-term notes, the high yield advantage of property and franchise REITs is markedly evident.

As long-term yield rates continue to decline, the competitive chase for high-quality real estate by insurance capital is expected to persist.