Topic: Insurance-Life Insurance
Report type: Participating Life Insurance and ALM Coordination Research Report (参与型寿险产品与资产负债协同研究报告)

Following a period of elevated interest rates and the subsequent transition into a rate-cutting cycle, U.S. life insurers are reassessing the strategic role of savings-oriented insurance products within their asset-liability management (ALM) frameworks. In a declining interest rate environment, how to align product design and asset allocation in order to balance liability costs, earnings stability, and long-term operating flexibility has become a key strategic issue for life insurance companies.

Focusing on the theme of “interest rate normalization and asset-liability coordination,” conduct an in-depth analysis of Participating Life Insurance in the U.S. life insurance market, addressing the following questions:

1. In light of recent U.S. interest rate cycles and the characteristics of life insurance liabilities, analyze the structural advantages of participating life insurance over traditional guaranteed-rate life insurance in terms of liability cost flexibility, equity allocation capacity, and earnings stability.
2. From a product mechanism perspective, explain the operational logic of “guaranteed benefits plus non-guaranteed dividends” in U.S. participating life insurance, with particular emphasis on dividend sources, distribution rules, and the role of surplus management in smoothing long-term returns.
3. From the perspectives of asset allocation, accounting treatment, and regulatory constraints, analyze how participating life insurance affects insurers’ capacity to allocate to equities, high-dividend assets, and alternative investments under the current interest rate and regulatory environment, and discuss key ALM constraints and trade-offs.
4. Based on practical experience in the U.S. insurance market, evaluate the long-term role of participating life insurance within savings-oriented and wealth management insurance product systems, and summarize the key risks and uncertainties that insurers should carefully manage when expanding participating product offerings.

## Evaluation Criteria for a Research Report on ALM Collaborative Optimization of U.S. Participating Life Insurance During an Interest-Rate Downturn

This evaluation framework is designed to assess research reports on the topic of 'Coordination between U.S. participating life insurance product mechanics and asset allocation under a declining interest-rate environment.' The framework contains 4 primary dimensions and 12 secondary dimensions, with a total score of 100 points. It supports consistent application for both human grading and LLM-based automated scoring. Scoring emphasizes: accuracy of understanding of institutional rules and product mechanisms, rigor of the ALM transmission chain, feasibility under U.S. accounting and regulatory frameworks, and the operability of conclusions with adequate risk coverage.

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### 1. Insights on the Interest-Rate Cycle and Institutional Advantages on the Liability Side (25 points)

#### (1) Depiction of the interest-rate cycle and scenario design (8 points)
- 7-8: Clearly characterizes the recent U.S. tightening-high plateau-declining phases (at minimum covering key changes in policy rates, the yield curve/term spreads, reinvestment rates, and credit spreads/default cycles), and translates them into ALM-usable scenario assumptions for life insurers (e.g., 'new money yield down x bps,' curve bull-flattening/bull-steepening, spreads widening/tightening, equity drawdowns). The time horizon is explicit.
- 4-6: Describes the direction and stages of rates, but lacks yield-curve/spread/scenario quantification elements, or the mapping to insurer operating variables is insufficient.
- 0-3: Only vaguely states 'rates fall' without a cycle structure or scenarios usable for inference.

#### (2) Liability-side characteristics and spread-pressure transmission (9 points)
- 8-9: Accurately decomposes key attributes of U.S. life insurance liabilities (guarantee costs, adjustability of dividends/credited rates, surrender/partial withdrawal/policy loan behavior, expenses and capital usage, etc.), and explains the transmission chain under rate declines from 'liability cost -> investment yield -> capital/dividend capacity.' Distinguishes the different pressures between new business pricing and in-force liability management.
- 4-7: Covers major liability characteristics and spread logic, but is weak on behavioral assumptions, in-force vs. new business differences, and/or capital transmission.
- 0-3: Liability description is inconsistent with U.S. life/participating product realities, or fails to form an effective transmission chain.

#### (3) Argument for the 'institutional advantage' of participating vs. guaranteed-rate products (8 points)
- 7-8: Builds a contract/institution-level comparison around the three prompt points (liability cost flexibility, room for equity allocation, earnings stability). Examples: how the non-guaranteed nature of dividends creates a buffer where 'returns are adjustable -> costs are adjustable'; how guarantee provisions and dividend mechanics affect asset duration/cash-flow matching; why participating products have stronger advantages in return smoothing and long-term operating flexibility (while also stating prerequisites and trade-offs).
- 4-6: Provides comparative conclusions, but the argument mostly stays at an experiential level and lacks mechanism explanations linking contract terms to ALM outcomes.
- 0-3: Comparison is off-target or treats participating insurance as 'high-yield wealth management' without reflecting institutional differences.

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### 2. Product Mechanics: How Guaranteed Benefits + Non-Guaranteed Dividends Work (25 points)

#### (1) Contract structure and decomposition of cash value/guaranteed items (8 points)
- 7-8: Clearly explains the core structure of participating life insurance (guaranteed cash value/guaranteed interest rate or guaranteed accumulation mechanism, premium and expense structure, death benefit, ways to use cash value, etc.), and identifies the rigid ALM constraints and risk points created by the 'guaranteed portion' during rate declines (e.g., guarantee floor, expense assumptions, duration characteristics).
- 4-6: Describes the general structure, but the linkage between guaranteed items and cash-flow/ALM constraints is unclear.
- 0-3: Misstates or confuses the basic structure (e.g., treats dividends as contractually guaranteed returns).

#### (2) Dividend sources, allocation rules, and the 'contribution principle/fairness' (9 points)
- 8-9: Accurately explains the 'three sources' of dividends (investment experience, mortality experience, expense experience, etc.) and the allocation logic under mutual/shareholder structures. Explains common allocation and measurement principles (e.g., policy contribution, intergenerational equity, dividend scale setting logic, dividend options such as cash/reduction of premium/paid-up additions) and their incentive impacts on both policyholders and the insurer.
- 4-7: Covers dividend sources and allocation, but lacks operational detail (which experience items flow into dividends, how fairness is reflected, how dividend options affect outcomes).
- 0-3: Dividend sources/rules are clearly inaccurate, or treats dividends like mutual fund distributions without reflecting insurance mechanics.

#### (3) Surplus management and long-term smoothing: mechanisms, boundaries, and costs (8 points)
- 7-8: Explains how insurers achieve long-term stability via dividend scale adjustments, surplus/buffers (e.g., capital buffers and mechanisms to absorb credit losses and interest-rate volatility), and intertemporal smoothing. Also specifies boundary conditions (regulatory/capital constraints, intergenerational equity disputes, hidden risks from excessive smoothing) and typical trade-offs during rate declines (e.g., 'protect dividends vs. protect capital/ratings').
- 4-6: Mentions 'smoothing' but lacks specific tools/constraints, or does not discuss costs and negative consequences.
- 0-3: Only slogan-level statements about 'smoothing through dividends' with no mechanism or boundaries.

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### 3. Asset Allocation and ALM Constraints/Trade-offs Under U.S. Accounting and Regulatory Frameworks (30 points)

#### (1) Identification of U.S. regulatory/accounting frameworks and extraction of key constraints (10 points)
- 9-10: Grounds the discussion in real U.S. frameworks (at minimum, clearly covers Statutory/NAIC basis and RBC constraints, and highlights key mechanisms such as admissibility, capital factors, interest-rate and credit-risk capital charges, cash-flow testing/asset adequacy requirements; bonus if it connects GAAP LDTI to earnings volatility and risk management). Explains how these constraints, in turn, shape asset choice and dividend capacity for participating products.
- 6-8: Mentions some regulatory/accounting points, but does not form a clear mapping of 'constraints -> actions -> outcomes.'
- 0-5: Over-generalizes the framework as 'stricter/looser regulation' without key U.S.-specific elements.

#### (2) Equity, high-dividend equities, and alternatives: feasible paths and limits (10 points)
- 9-10: Discusses the allocation space for equities/high-dividend equities/alternatives (private credit, infrastructure, real estate, etc.) under the constraint framework: impacts on capital and volatility after entering the general account, liquidity and valuation issues, term matching and return sources. Distinguishes the roles of 'dividend/factor exposure' vs. 'credit spread/liquidity premia,' and provides qualitative or semi-quantitative statements on allocation caps/risk budgets.
- 6-8: States the directional conclusion that 'more risk assets can be allocated,' but lacks path detail (under which capital/accounting basis, and how impacts show up in dividends and solvency).
- 0-5: Treats equity/alternative allocation as a pure investment view without reflecting insurance liabilities and regulatory constraints.

#### (3) ALM co-design: linkages among duration/cash flow/reinvestment/behavioral risks (10 points)
- 9-10: Provides an executable ALM co-design framework (e.g., liability cash flows and behavioral assumptions -> duration gap and convexity -> reinvestment strategy and credit allocation -> linkage to dividend scale/product pricing -> capital and liquidity buffers), and clearly states key trade-offs during rate declines (yield erosion vs. capital stability, moving down credit quality vs. loss distribution, liquidity vs. illiquidity premium, dividend stability vs. intergenerational equity).
- 6-8: Framework is largely complete, but lacks deep trade-off analysis and/or lacks implementable metrics (e.g., gap measurement, sensitivities, stress-test dimensions).
- 0-5: No closed-loop ALM; assets and liabilities are disconnected.

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### 4. Long-Term Positioning, Industry Benchmarking, and Risk Uncertainty (20 points)

#### (1) Quality of market practice evidence and peer benchmarking (6 points)
- 5-6: Cites representative U.S. participating players/product practices (e.g., operating characteristics of major mutual life insurers, dividend strategies, and asset-allocation tendencies) and explains 'why they do so' rather than merely listing facts. Data sources are clear (annual reports, regulatory filings, rating agency reports, industry associations, etc.).
- 3-4: Includes cases/data, but they are fragmented; benchmarking dimensions and/or source citations are insufficient.
- 0-2: Little to no practical evidence, or cases do not match participating products.

#### (2) Judgment on the long-term role of participating products within savings/wealth management (8 points)
- 7-8: Clearly answers 'what is the long-term role, for whom, and what does it substitute or complement': delivers a consistent conclusion across customer needs (stable growth, tax/estate planning, volatility tolerance, liquidity preference, etc.), distribution and competing products (fixed annuities, IUL/VUL, traditional guaranteed-rate life insurance, etc.), and insurer objectives (stable AUM, capital efficiency, dividend promise management). States applicability boundaries in a declining-rate period and under future cycle transitions.
- 4-6: Provides a positioning conclusion, but does not connect the customer-product-insurer triad, and/or lacks boundary conditions from a cycle perspective.
- 0-3: Positioning is vague or detached from the core 'ALM coordination' storyline.

#### (3) Key risks and uncertainties: completeness and actionable mitigations (6 points)
- 5-6: Risk coverage is comprehensive and tightly tied to participating mechanics: includes at least interest-rate and reinvestment risk, credit losses and spread risk, equity/alternative volatility and liquidity risk, behavioral risks such as surrender/policy loans, reputational and sales-compliance risks from dividend reductions, and regulatory/accounting change risk. Provides actionable mitigation ideas (stress-test dimensions, risk budgets, dividend policy governance, liquidity tiering, etc.).
- 3-4: Lists major risks, but lacks impact pathways or mitigations remain principle-level.
- 0-2: Risk discussion is perfunctory or mismatched to the key trade-offs of participating products.