Source: Financial Times
How are dividends calculated? Why do dividend realization rates vary across different participating insurance products? — User "Xiao Chun"
In recent years, driven by economic and social development, growing demand for wealth management among residents, and an increasingly diverse range of life insurance products, participating insurance (hereinafter referred to as "participating policies") has become a staple in the asset allocation plans of many households. In the first half of 2026, gross premiums written for participating policies reached 10126 billion yuan, representing year-over-year growth of over 94%. The appeal of participating policies lies in their seemingly balanced structure: on one hand, guaranteed benefits are contractually stipulated; on the other, dividends fluctuate based on the insurer's operational performance. However, this coexistence of "guaranteed" and "floating" elements has also led to significant confusion among consumers after purchasing these policies: What do the illustrated figures actually represent? How are actual dividends calculated? And why is there such wide variation in realized dividends across different years and products?
To understand participating insurance, start with its basic definition. Participating insurance is a life insurance product where the insurer distributes a portion of its actual operating surplus to policyholders. Through whole life, endowment, or annuity plans, policyholders not only receive risk protection but also share in the business results of the participating insurance portfolio.
Per the "Disclosure Rules for Life Insurance Products with Terms Exceeding One Year," dividend sources include mortality variance, expense variance, and investment income variance, with investment income variance being the primary source. Simply put, mortality variance arises from differences between actual mortality rates and actuarial assumptions; expense variance stems from the gap between actual operating expenses and assumed expenses; and investment income variance results from the difference between actual investment returns in the participating account and assumed returns. Regulators mandate that insurance companies must distribute at least 70% of the distributable surplus from participating insurance products to policyholders annually.
The dividends consumers receive are not directly split from the investment returns of the participating insurance account. Surplus generated by insurers from participating insurance business must first have statutory reserves set aside to cover future claims, and then a "Special Reserve for Participating Insurance" is established to accumulate funds over time. This reserve smooths dividend payouts—accumulating in profitable years and releasing in lean years—to ensure a stable dividend experience for policyholders, with the reserve balance never allowed to go negative. After these two steps, the remaining "distributable surplus" is allocated to policyholders at a rate of no less than 70%.
The dividend realization rate is the ratio of actual dividends received by policyholders during a policy year to the projected dividends demonstrated at the time of sale. It reflects the extent to which the expected dividends shown on the sales illustration for a participating insurance product have been fulfilled over a given period. In compliance with regulatory requirements, insurers must disclose the dividend realization rates for participating products to enhance transparency. Participating policies offer cash dividends, reversionary bonuses, and terminal bonuses, each with its own realization rate calculation: Cash Dividend Realization Rate = Actual Cash Dividends ÷ Demonstrated Cash Dividends. Reversionary and terminal bonuses must be disclosed separately. A realization rate of 100% indicates that actual dividends paid match the demonstration; exceeding 100% means actual dividends are higher than demonstrated; falling below 100% signifies that actual dividends did not meet the demonstrated level.
Recent disclosed data reveals significant divergence in dividend realization rates across products. Among 15 life insurers and 766 participating insurance products, dividend realization rates have improved significantly since 2026, with nearly 40% of products achieving rates above 100%.
Industry analysts note that dividend realization rates vary significantly across different participating insurance products, largely due to differing assumed interest rate caps set at the time of sale. Products sold several years ago were designed with higher assumed rate caps. Since 2026/7/1, the maximum assumed interest rate for participating insurance has been uniformly lowered from 3.9% to 3.5%. An older product built on a higher assumed rate requires a higher actual dividend payout than a newer product based on a 3.5% assumed rate to achieve the same dividend realization rate—even if the insurer's actual investment performance is identical. The generally higher dividend realization rates of newer products simply reflect the lower assumed rate benchmark and do not necessarily mean consumers will receive larger actual dividend amounts compared to older products.
Notably, disclosure standards for participating insurance are continuously improving. In 4 this year, the National Financial Regulatory Administration issued the "Negative List for Life Insurance Products (Version 2026)", explicitly prohibiting participating insurance product manuals from promising dividend distribution ratios exceeding those shown in benefit illustrations, thereby curbing misleading sales at the source. In 9, the China Insurance Association solicited public feedback on model clauses for three participating products to standardize terminology related to dividend rights—such as "Sum Assured," "Policy Dividends," and "Cash Value"—and incorporate dividend explanations into each clause. To strengthen dividend information disclosure, the model clauses specify that contracts must include a table detailing the calculation basis for cash values corresponding to dividends at the end of each policy year.
For consumers, participating insurance is fundamentally an insurance product that provides both protection and long-term savings. It should not be simply compared to bank deposits or wealth management products. To make a choice aligned with your long-term financial planning, you need to fully understand the dividend mechanism and evaluate factors such as the insurer's long-term investment return on its dividend account and its solvency adequacy ratio.
