20161124-招商证券_香港_-2017_Insurance_Sector_Outlook_22页_1mb_1mb

2017 Insurance Sector Outlook Summary

Core Content

The 2017 Insurance Sector Outlook from Jerry Li at China Merchants Securities (HK) provides a comprehensive analysis of the insurance sector, focusing on Property & Casualty (P&C) and Life insurance companies. The report outlines the market outlook, investment ratings, and valuation adjustments for key players in the sector, while also highlighting the potential for sector rebound and investment opportunities.

Main Points

1. Sector Outlook and Market Conditions

• Rally in 1Q17: The report anticipates a potential rebound in the first quarter of 2017, driven by:
  • Domestic funds seeking overseas investment opportunities due to RMB depreciation.
  • Positive policies expected from the Two Sessions in March 2017.
  • Improved economic environment and surprising annual results.
• Further Correction: The sector is not yet fully corrected, with a potential 10% downside due to the US rate hike in December and RMB depreciation.
• Uncertainties Remain: The autumn harvest (second half of 2017) is uncertain, and any economic stabilization or capacity reduction progress could lead to a stock market re-rating.

2. P&C Insurance Sector

• Market Leadership: PICC and Ping An are expected to maintain their leadership in the P&C sector.
• Market Share Growth: Their market shares are growing steadily.
• Underwriting Profits: They monopolized industry underwriting profits, while others face underwriting losses.
• ROE: Both are expected to maintain ROE above 15% in 2017.
• Premium Growth: Their premium growth is expected to outperform the industry average.
• Auto Insurance: Auto insurance premium growth is faster than the industry average, and large companies with cost advantages are leading the market.

3. Life Insurance Sector

• Profit Recovery: Pure life insurers are expected to see net profit growth of more than 30% YoY in 2017.
• NBV Decline: NBV growth is expected to decline due to a high base.
• Tax-Deferred Pension Products: A pilot scheme may be launched, but the impact is limited.
• Valuation: The report recommends a pecking order of Ping An > NCI > PICC.

4. Investment Yield Trends

• Net Investment Yield Declined: Due to poor A-share performance.
• Gross Investment Yield Could Rebound: Expected to improve in the coming year.

5. TP Adjustments

• Ping An and NCI: Their Target Prices (TP) were raised.
• AIA: Its TP was cut due to concerns over China UnionPay's restrictions on insurance purchases in Hong Kong.
• TP Summary:
  • Ping An: TP increased by 5.7% to HK$53.39
  • NCI: TP increased by 13.5% to HK$45.22
  • AIA: TP decreased by 8.7% to HK$55.45

Key Companies and Their Outlook

Investment Recommendations

• Preferred Stocks: Ping An, NCI, and PICC are highlighted as top picks due to solid fundamentals, attractive valuations, and potential for re-rating.
• Market View: The report recommends stocks with strong and improving fundamentals and high earnings visibility.

Conclusion

The outlook for the insurance sector in 2017 is cautiously optimistic, with potential for a rebound in early 2017. Ping An and PICC are expected to lead in profitability, while NCI shows positive transformation. The life insurance sector is anticipated to see profit recovery, but NBV growth is expected to decline. The tax-deferred pension products are seen as having limited impact. Overall, the sector is expected to outperform the market, and the top stocks are recommended for investment.