20131009-美银美林-Insurance_Barometer__Life_mild_recovery__challenging_P_C_15页_733kb

Insurance Barometer Summary: 3Q13

Core Content

The 3Q13 Insurance Barometer by Bank of America Merrill Lynch provides an overview of the outlook for both the life and non-life (P&C) insurance sectors in China, along with insights into the investment landscape. The survey includes responses from over 40 participants, including insurers, agencies, and independent industry experts.

Main Viewpoints

Life Insurance Sector

• Mild Recovery: The majority of participants now hold a neutral view on the life insurance sector, indicating it has bottomed out, but a sustainable re-rating is not expected.
• VNB Growth: The forecast for VNB growth remains at low-single-digit (around 5-10%), with 60% of participants estimating 5-10% growth for FY13.
• Investment Impact: Improved investment returns, particularly from debt investment plans and new channels, are seen as a key driver for premium growth. The guaranteed rate (GR) deregulation had a smaller impact than expected, but is still considered the biggest challenge.
• Product Attractiveness: Participants believe that new products with deregulated rates of 3.5% are becoming more attractive, though value creation for the firms is still limited.
• Distribution Channels:
  • Bancassurance is seen as a growth opportunity due to narrowing spread between insurance and bank wealth management (WM) products.
  • Agency channels remain neutral, with concerns about agent saturation and commission levels, though some believe productivity and margin expansion will drive future growth.

Non-Life (P&C) Insurance Sector

• Challenging Outlook: Two-thirds of respondents remain cautious about the underwriting outlook, citing rising claims, increased catastrophes, and lower underwriting margins.
• Combined Ratio: The combined ratio for P&C is expected to increase, with 50.5% of claims as a percentage of premiums in 8M13, the highest since 2009.
• Auto Insurance Deregulation: The delay in auto insurance pricing reform is seen as a positive factor, as it may ease pressure on underwriting profitability.
• Agricultural Insurance: While it was a key driver for PICC in 1H13, concerns include intensifying competition, operation volatility, and high claims from natural disasters.

Key Investment Insights

• Investment Outlook: Participants are more positive about the investment outlook, with 48% expecting improvement, up from 38% in 2Q13.
• Debt Investment Plans: These are viewed as a new opportunity, with yields above 6.3%, significantly higher than existing returns (4.4–5.0%).
• Preferred Shares: Insurers are interested in preferred shares of banks if the dividend yield is above 6%, but the potential scale is limited.
• Asset Allocation: Most participants plan to maintain equity allocation, with a preference for high-yield bonds and debt investment plans due to higher yields and lower volatility.
• Deposit Allocation: The outlook for deposit investment is neutral, as interest rate changes are not expected this year.

Preferred Insurers

• CPIC (2601 HK):

  • Price objective: HK$33.94 based on SOTP valuation.
  • Life operations: 10x new business multiplier.
  • Non-life operations: 2x FY13E BV.
  • Holding company: pegged at par to book value, with a 5% discount due to conglomerate structure.
  • Risks: equity market plunge, inflation, and interest rate drops.

• Ping An (2318 HK):

  • Price objective: HK$72.29 based on SOTP valuation.
  • Life operations: 8x new business multiplier.
  • Non-life operations: 2x BV.
  • Banking operations: 1x book value.
  • Holding company: 10% discount due to conglomerate structure.
  • Risks: equity market correction, which could hurt both insurance and banking segments.

Summary of Survey Trends

• Life Insurance:

  • Bearish view declined from 29% in 2Q to 20% in 3Q.
  • Neutral view increased, with mild recovery expected.
  • VNB growth remains low-single-digit, with no material change from 2Q.
  • New products with deregulated rates are gaining traction.

• Non-Life Insurance:

  • Cautious outlook remains, with combined ratio expected to increase.
  • Auto insurance deregulation is delayed, providing some relief.
  • Agricultural insurance is a growth driver, but competition and volatility remain concerns.

• Investment:

  • Debt investment plans are the top opportunity, with high yields and low volatility.
  • Equity and bond outlooks are neutral, with equity still attractive but volatile.
  • Preferred shares are a potential investment, but scale and dividend yield are key factors.

Key Figures and Data

• Life Insurance:

  • 60% of participants forecast low-single-digit VNB growth.
  • 53% of participants said the impact of GR deregulation was smaller than expected.
  • 60% of participants are confident in new product premium growth.

• Non-Life Insurance:

  • 73% of participants expect the combined ratio to increase.
  • 50.5% of claims as % of premiums in 8M13, the highest since 2009.
  • 65% of participants are bearish on P&C underwriting, up from 58% in 2Q.

• Investment:

  • Debt investment plan yield: 6.3%.
  • Preferred shares: dividend yield above 6% is a key consideration.
  • 48% of participants expect improved investment performance.

Conclusion

The 3Q13 Insurance Barometer highlights a mild recovery in the life insurance sector, with no clear catalyst for sustainable re-rating. The non-life sector faces challenges due to rising claims, catastrophes, and underwriting margin pressure. On the investment front, debt investment plans and preferred shares are seen as opportunities, while equity and bond outlooks are neutral. The preferred insurers are CPIC and Ping An, with valuation and growth strategies as the main focus.