德银-中国-保险行业-中国保险业2018年展望：竞争加剧-20180104-28页_993kb

China Insurance Sector 2018 Outlook Summary

Core Content

This document provides an analysis of the Chinese insurance sector, focusing on life and property & casualty (P&C) segments, and outlines the outlook for 2018. It highlights the impact of financial deleveraging, regulatory changes, and market conditions on the sector's performance and valuation.

Main Views

• Life Insurance Sector:

  • The growth of life insurance business volume (VNB) is expected to moderate due to increased competition from bank deposits and regulatory changes.
  • The relative attractiveness of insurance savings products has declined, with 1Y WMP yields surpassing average crediting rates of life insurers.
  • Regulation No.134 has reduced the appeal of insurance savings policies, particularly in the first five years of the policy.
  • The sector is trading at 1.0x 2018E P/EV despite an average EV growth of 18%, indicating undervaluation.
  • Insurers with a stronger protection focus, such as Ping An and NCI, are expected to be more resilient.
  • China Life is downgraded to Hold due to its high reliance on savings products and weaker protection focus.

• P&C Insurance Sector:

  • The sector is viewed as neutral due to upward pressure on the combined ratio (CR) from auto insurance.
  • The auto insurance CR is expected to rise to 97.2% in 2018E and 97.5% in 2019E due to lower premium rates and tighter expense controls.
  • PICC P&C is expected to see a decline in underwriting profits due to the higher CR.

Key Information

• Valuation Adjustments:

  • Target prices for Chinese insurers have been revised down by 4-14% due to lower VNB forecasts and revised NB multiples.
  • The P/EV ratio for the sector is expected to remain low, reflecting undervaluation.
  • The implied NB multiple for most insurers is also adjusted, with some showing more favorable valuations.

• VNB Growth Forecasts:

  • VNB growth is expected to decrease by 0-8% in 2H17E and 4-10% in 2018E due to weaker demand for savings products.
  • The pressure is most apparent in 1H18E, given the high base set in 1H17E.

• Investment Market Conditions:

  • The Chinese investment market is stabilizing, with 10-year government bond yields increasing.
  • The A-share market has shown improved stability, with reduced quarterly volatility.

• Recommendations:

  • Ping An and NCI are recommended as top picks due to their strong protection focus.
  • China Life is downgraded to Hold due to its vulnerability to weaker demand for savings products.
  • PICC Group and PICC P&C are held at Hold due to the upward pressure on their combined ratio.

Summary of 2018 Jumpstart Product Offerings

• Product Types:

  • Most insurers offer a mix of traditional annuity and universal life (UL) products.
  • Coverage periods vary, with some products providing benefits until age 80 or whole life.

• Guaranteed Rates:

  • Ping An offers a guaranteed rate of 1.75% for UL products.
  • NCI offers a higher guaranteed rate of 3.5% for UL products.
  • China Life offers a guaranteed rate of 2.5% for UL products.

Key Changes

Top Picks

• Ping An (2318.HK): Buy at HKD83.80
• NCI (1336.HK): Buy at HKD55.10

Conclusion

The Chinese insurance sector faces challenges from rising competition and regulatory changes, but the overall outlook remains positive due to undervaluation and strong fundamentals. Insurers with a stronger protection focus are better positioned to weather the changes, while those heavily reliant on savings products may face more pressure.