A stop-sale rush sells the next decade's losses

Each time the maximum pricing rate for traditional life insurance products in China has been lowered, the months before the change have followed the same pattern. Agents tell customers that the old rate will soon be gone. Banks give the products their best shelf space. Premium surges, the industry's premium table reshuffles, and the quarter after the deadline looks weak by comparison. The industry calls this a stop-sale rush, and many insurers plan for it the way a retailer plans for a festival season.

I have watched it from both sides. As a consultant I helped clients estimate the volume such campaigns could produce. As chief strategy officer of Jiangheng Life, a mid-size insurer in Wuhan, I recommended in April 2023 that we withdraw our 3.5 per cent increasing whole-life product three months before the industry deadline and forgo the rush. I now think the rush is among the most consequential decisions a Chinese life insurer takes in each rate cycle, and that it is usually taken by the wrong people for the wrong reasons.

Why the rush looks rational

The case for the rush deserves a fair statement. Customers who want a fixed rate will buy it from someone. If one insurer declines, the premium goes to its rivals and the policyholders are no better protected. Agents and bank partners judge an insurer partly by whether it supports them when demand is high, and an insurer that steps back may lose relationships it needs later. Position in the premium table affects recruitment, bank shelf space and shareholder confidence. And the regulator has set the date: products sold before it are lawful and approved.

All of this is true, and none of it touches the main point. The premium written in a rush arrives within weeks. The obligation it creates lasts for the life of the policy, often forty years or more for an increasing whole-life product bought by a customer in their forties. The decision is therefore not about a quarter's sales. It is about whether the insurer wishes to add a block of long-dated liabilities at a rate that the market, and the regulator, have just judged too high.

What the liability remembers

A pricing rate is a promise that the policy's value will grow at that rate whatever happens to interest rates afterwards. An insurer can keep that promise only if its assets earn at least as much over the life of the policy, after expenses. In the spring of 2023, ten-year government bonds yielded less than 3 per cent, and our investment team could buy thirty-year bonds at only a little above 3.2 per cent. Every yuan sold at 3.5 per cent began life with a negative spread against the safest long-dated asset available.

Insurers answer this in several ways. They expect to earn more on equities, property, infrastructure debt or longer bonds. They expect rates to recover. They expect older, higher-yielding assets in the portfolio to carry new business for a time. Each of these may hold for a while. None of them is a reason to add more liabilities at the rate being withdrawn. When ten-year yields fell below 2 per cent at the end of 2024, the business written in the 2023 rushes did not reprice itself. It remains on the books and will for decades.

The cost is not only financial. A large block of high-rate business narrows management's later choices. It raises the pressure to take investment risk in order to keep the promise, and it makes solvency more sensitive to interest rates under China's risk-oriented solvency rules. It can also slow the move towards participating and protection products that the industry needs, because a sales force paid well on high-rate savings during the rush finds the lower-rate products harder to sell afterwards.

At Jiangheng the decision to step back cost us. We sold RMB 1.9 billion of first-year premium in the three months before the deadline rather than the RMB 5.8 billion our sales plan had assumed. First-year premium for 2023 fell 17 per cent, we dropped seven places in the table, and about 2,100 agents left in the second half of the year, many for insurers that were running the rush. I do not dismiss those costs. Some of the agents who left were good at their work and had families to support.

Against that, the average pricing rate across our in-force traditional reserves has fallen from 3.62 per cent at the end of 2022 to 3.21 per cent at the end of 2025. The figure moves slowly because old policies remain, but it moves in the right direction, and the business we did not write is a liability we do not have to fund.

Three questions for the board before the next cut

The maximum pricing rate is now reviewed periodically against market yields, and further cuts are likely if long-term rates stay low. Boards should expect the next rush and decide in advance how they will treat it. I would suggest three questions.

The first is what the proposed campaign adds to the liability rather than to premium. Management should show the expected spread on the new block under the board's agreed rate scenarios, including one in which long yields stay at today's level for ten years, and the solvency capital the block will consume.

The second is who decides. In many insurers the campaign is planned by the sales function and approved as part of the quarterly plan. A decision to take on forty years of rate risk belongs with the asset-liability committee and the chief actuary, reported clearly to the board's risk committee, not with whoever owns the premium forecast.

The third is what the insurer will offer its agents and partners if it declines. Stepping back without an alternative merely moves income from our agents to someone else's. At Jiangheng we launched a 3.0 per cent product and a participating annuity in May 2023 and paid agents for persistency on the new business. We should have told them earlier; more of them would have stayed.

None of this means insurers should stop selling savings. Chinese households need long-term savings, and life insurers have a proper role in providing them, particularly through participating products in which the promised rate is modest and the policyholder shares in investment returns. It means that the last weeks before a pricing-rate cut should be recognised for what they are: a decision about the next forty years, taken under the pressure of the next forty days.