China's Ministry of Finance recently introduced a pivotal update to the performance evaluation framework for state-owned commercial insurance companies, emphasizing a longer-term view of profitability and capital preservation. This reform, effective from the 2025 performance cycle, adds a five-year evaluation metric alongside existing one- and three-year indicators for two core measures: return on equity (ROE) and state capital preservation and appreciation rate.

By allocating 30% weight to current-year results, 50% to three-year averages, and 20% to five-year averages, the revised framework encourages insurers to balance short-term gains with sustained financial health. This nuanced approach addresses the inherent long-duration nature of insurance liabilities, particularly in life insurance, where capital must be managed over decades rather than quarters.

For international financial practitioners—ranging from asset managers to multinational legal and accounting advisors—this signals a more stable and predictable environment for China's insurance capital, which totaled approximately RMB 27 trillion (US$3.7 trillion) in assets as of 2024. Longer evaluation cycles align with global trends favoring patient, value-oriented investment and suggest that Chinese insurers will increasingly support equity markets and infrastructure projects with steady, long-term commitments.

The reform builds on prior efforts that incorporated three-year performance metrics, completing a shift away from an exclusive focus on annual results. This encourages insurers to look beyond market fluctuations, cultivating portfolios that can withstand volatility while supporting real economy sectors over extended periods.

Beyond adjusting performance measures, the policy mandates improvements in asset-liability management, investment governance, and risk control. Insurers are urged to optimize term structure matching, carefully select equity investments, and strengthen internal decision-making processes—including due diligence and post-investment monitoring.

These changes complement the joint regulatory blueprint issued earlier this year by six Chinese agencies, which aims to channel more medium- and long-term capital—including insurance, pension, and enterprise annuity funds—into capital markets to foster sustainable growth.

The global resonance of this approach is clear. Similar to evolving regulatory landscapes in Europe and North America, where long-term stewardship and sustainability have become integral to investment frameworks, China's insurance sector is adopting measures that mitigate short-termism and enhance market stability.

For foreign institutions engaged in China, this evolution opens opportunities to deepen collaboration through joint ventures and cross-border investment vehicles that value multi-year returns and risk management discipline. It also underscores the importance of compliance and governance expertise to navigate the increasingly sophisticated internal controls within Chinese insurers.

As China's state-owned insurance companies recalibrate toward patient capital and disciplined investing, they stand poised to become vital anchors in the country's financial ecosystem—providing not only economic ballast but also fueling the long-term growth ambitions of domestic and international stakeholders alike.