20161126-招商证券_香港_-2017_Insurance_Sector_Outlook_22页_1mb_1mb

2017 Insurance Sector Outlook Summary

Core Content

This document outlines the outlook for the insurance sector in 2017, focusing on property and casualty (P&C) and life insurance companies. It highlights market trends, valuation changes, and the potential for a sector rebound in the first quarter of 2017, while also acknowledging uncertainties in the second half.

Main Points

1. Potential Rally in 1Q17

• Rebound Catalysts:

  • Domestic funds may enter the market if HK stocks become more attractive due to RMB depreciation.
  • Positive policies from the Two Sessions in March and a low base for GDP growth in 2Q17 could improve the market environment.
  • Annual results in 2017 may exceed expectations, especially for Ping An and NCI.

• NBV Growth:

  • Better-than-expected New Business Value (NBV) growth could drive a rally for quality stocks.

2. Autumn Harvest Uncertain

• Key Focus:

  • Any stabilization in the Chinese economy, such as progress in capacity reduction, improved PPI, better corporate earnings, and deleveraging, could lead to a re-rating of the stock market.
  • Cyclicals, including insurance stocks, may benefit from such signs.

• Uncertainties:

  • The timing and scope of policy changes are not yet confirmed.
  • There are still uncertainties regarding the impact of economic events on the sector.

3. TP Adjustments

• Raising TPs:

  • Ping An and NCI have had their Target Prices (TPs) increased.
  • Lufax's HK listing is expected to drive re-rating for Ping An.

• Cutting TPs:

  • AIA's TP was reduced due to concerns about RMB depreciation and restrictions on insurance purchases in HK.

4. Pecking Order

• Preferred Stocks:
  • Ping An, NCI, and PICC are the top picks based on solid fundamentals and improving earnings visibility.

Key Information

P&C Sector

• Market Leadership:

  • PICC and Ping An are leading the P&C sector with growing market shares and monopolizing underwriting profits.
  • Their Return on Equity (ROE) is expected to stay above 15%.

• Performance Drivers:

  • Auto insurance premium growth is outpacing the industry.
  • Cost advantages and improved underwriting margins contribute to their strong profitability.

• Valuation:

  • PICC is valued at 1.23x P/B with a high ROE of 16.2% in 2017E.
  • Ping An's valuation is attractive at 0.86x P/EV, which is half of its historical average.

Life Insurance Sector

• Profit Recovery:

  • Life insurers are expected to see net profits grow more than 30% in 2017E.
  • NBV growth is anticipated to decline due to a high base.

• Tax-Deferred Pension Products:

  • A pilot scheme may be launched, but its impact is limited.
  • The NBV growth from these products is estimated to be between 1% and 4% in the long term.

• Business Differentiation:

  • Companies are differentiating through improved product mix and cost structures.
  • NCI is expected to see a decline in Bancassurance single premium contribution, which could improve its profit structure.

Investment Yield

• Net Investment Yield:
  • Declined due to poor A-share performance.
  • Gross investment yield could rebound, which may be a positive factor for the sector.

Summary Table of Key Companies

Conclusion

The outlook for the insurance sector in 2017 is cautiously optimistic, with potential for a rebound in Q1 driven by better-than-expected NBV growth and improved market conditions. However, the sector may still face challenges in the second half of the year. Among the companies, Ping An, NCI, and PICC are highlighted as the top picks due to their strong fundamentals, improving earnings visibility, and attractive valuations.