Dividend insurance demonstration interest rate "cooling down," with the cap lowered to 3.5%

Source: Economic Information Daily (Economic Reference News) | Author: Xiang Jiaying

In the annual reports of listed insurance companies that have just wrapped up, one set of figures sketches the strong rise of dividend-paying insurance—In China Life’s 2025 floating-income business, the share of first-year single premiums is nearly 50%; in Taikang Life’s new policy regular-premium dividend-paying insurance, the share has increased to half; in Ping An’s dividend-paying insurance, the premium scale year over year has grown by more than 40%; and in New China Life, the dividend-paying insurance’s share of overall regular premium business reached 77% in the fourth quarter. However, as dividend-paying insurance accelerates its surge, regulatory adjustments aimed at “cooling down” are also taking hold.

Reporters learned from industry insiders that the life insurance industry has reached consensus on lowering the dividend-paying insurance illustration (demonstration) interest rate. The upper limit of the dividend-paying insurance illustration interest rate is lowered from 3.9% to 3.5%. Products with an illustration interest rate higher than 3.5% must complete filing changes or be taken off sale by June 30. At the same time, the industry has also reached consensus on the actual dividend level for 2025. The guidance issued by regulatory authorities is 3.2%. This means that dividend-paying insurance, which has just taken up the banner of insurance product transformation, is moving into comprehensive standardization—from the sales front end to the benefit realization end.

Regulatory “combo punches” to curb market expectations

When the dividend-paying insurance illustration interest rate is lowered, multiple new life insurance policies are also rolling out in quick succession: On March 27, the China Insurance Industry Association issued the “Self-disciplinary Provisions on the Management of Insurance Product Suitability.” Subsequently, the Life Insurance Department of the National Financial Regulatory Administration issued the “Notice on Further Strengthening the Management of Fees in Bank Agency Channels,” further refining matters such as bank-insurance channel fee management and the implementation of “report in the bank and approve in the bank” (i.e., unified execution of reporting and approval).

“Regarding sales staff classification and customer tiered classification carried out around product suitability management, it is still largely ‘soft constraints’ at the industry self-regulatory level. But the further lowering of the dividend-paying insurance illustration interest rate, along with renewed tightening of fee management in bank-insurance channels, are already ‘hard requirements’ directly targeting the cost of liabilities and standardized operations.” An industry insider noted that this round of consecutively introduced new rules shows a “2+1” pattern, while pointing to the two biggest keywords currently drawing the most attention in the life insurance market—“C-position” (C-place) channel bank-insurance and “C-position” product dividend-paying insurance.

It is worth noting that this lowering of the illustration interest rate is another round of “cooling down” after the dividend-paying insurance illustration interest rate has been lowered twice already. In July 2025, when the dynamic adjustment mechanism linking the predetermined interest rate to market interest rates was triggered, the upper limit of the predetermined interest rate for dividend-paying insurance was adjusted from 2% to 1.75%. Entering 2026, some insurance companies even proactively further lowered the predetermined interest rate to 1.25%. On February, China and the UK Life officially released Fu Man Jia Plan C (Version of Enjoyment) participating whole-life insurance (dividend-type). It sets the guaranteed portion of the predetermined interest rate at 1.25%, which is 50 basis points lower than the industry mainstream 1.75%, marking the historical low for guaranteed returns among domestic savings-type life insurance products.

Judging from the backdrop of the illustration interest rate reduction, the core considerations of regulatory authorities lie in protecting consumers’ rights and interests and improving the realizability of the dividend-paying insurance illustration interest rate. Ma Wei, deputy director of the China Wealth Management Research Center at Central University of Finance and Economics, explains that the return structure of dividend-paying insurance is divided into guaranteed interests and floating interests. The floating interests are the annual dividends and depend entirely on the insurer’s actual operating conditions. They are not fixed and could even be zero. But in actual sales, some agents attract customers with high illustration interest rates, which can lead consumers to mistakenly believe that the illustrated returns are the money they can receive in the future, thereby planting hidden risks of sales misguidance.

At the same time, regulation on the dividend level is also being tightened in parallel. Regulatory authorities have made it clear that insurance companies must determine the actual dividend level for 2025 to follow the principles of “asset-liability matching, financial and actuarial hard constraints, investment returns must be able to support dividends, and dividend levels must be sustainable.” They may not deviate from the real conditions of account assets and liabilities and investment returns, nor arbitrarily raise dividend levels to engage in “involution-style” competitive bidding.

From “high guarantees” to “low guarantees + high floating”

Behind the frequent regulatory moves is a complex situation formed by the overheating of sales for dividend-paying insurance interwoven with a falling interest-rate cycle. Since 2025, against the backdrop of persistently declining bank deposit rates, dividend-paying insurance—thanks to its “guarantee + floating” return structure—has become one of the most favored products on bank counters. After visiting multiple institutions, the reporter found that dividend-paying insurance with a predetermined interest rate of 1.75% has become the flagship product unanimously promoted by banks. Wealth managers package these products as a tool to “lock in long-term returns.”

Liao Zhiming, chief analyst of fixed income at Huayuan Securities, points out that on the one hand, deposit rates are low and dividend-paying insurance has the product feature of a guaranteed interest rate. On the other hand, with the stock market performing well in 2025, the return performance that dividend-paying insurance can present to customers is relatively attractive. In addition, insurance products can bring banks higher fee-based intermediary business income. Multiple factors jointly boost dividend-paying insurance’s popularity in bank-insurance channels.

However, for insurance companies, investment-side pressure is increasing. Data show that over the past three years, the rolling average financial yield in the life insurance industry has been about 3.2%. From 2019 to 2023, insurers’ investment return rate fluctuated downward from 4.94% to 2.23%. In a macro environment where the central tendency of yields on 10-year government bonds has already fallen to around 1.80%, if the guaranteed interest rate remains at 1.75%, the exposure to interest spread loss risks will keep expanding.

This is also an important reason why some insurers have proactively lowered their predetermined interest rates. Longge, deputy director of the Innovation and Risk Management Research Center at University of International Business and Economics, analyzes that insurers reduce the predetermined interest rate of dividend-paying insurance mainly to cope with the long-term low interest-rate environment, prevent interest spread loss risks, and align with the pricing dynamic adjustment mechanism. This is pushing the industry to transform from a “high guarantee” model to a “low guarantee + high floating” model, guiding competition back to the industry’s investment and service capabilities.

Looking ahead, multiple listed insurers have already made the transformation of dividend-paying insurance a strategic focus for 2026. Ping An states that in 2026 it will treat dividend-paying insurance as the core promoted insurance type for the entire year, and the share of related business is expected to further rise. A research report from Oriental Securities notes that under the “guarantee + floating” product framework, dividend-paying insurance balances stability and earnings elasticity, and its long-term appeal remains. It is expected that it will continue to be an important direction for life insurance product transformation.

It should be noted that after the dividend-paying insurance illustration interest rate is lowered, challenges on the sales side will further increase. On the one hand, before the predetermined interest rate reduction policy for 2025 took effect, many customers had already bought fixed-income products such as additional premium whole-life insurance in advance, leading to demand being prepaid. On the other hand, the “guarantee + floating” return mechanism of dividend-paying insurance places higher requirements on agents’ professional explanation skills. How to clearly explain the return logic and risk characteristics of dividend-paying insurance, and help customers establish reasonable expectations, will become a core competitive barrier for agent teams. Wang Peng, deputy researcher at the Beijing Academy of Social Sciences, believes that the sales core of dividend-paying insurance lies in “precise matching”—ensuring that product attributes align with customers’ risk tolerance, and preventing false promises. Insurance companies also need to “hone their investment skills”: only with stable profitability can dividend expectations be supported.

(Editor: Wen Jing)

Keywords:

                                                            Dividend-paying insurance