20180914-招银国际-China_Insurance_Sector__More_opportunities_than_challenges_ahea_16页_1mb

China Insurance Sector Summary

Core Content

The China insurance sector is positioned for long-term growth despite facing challenges in the first half of 2018 (1H18). The report outlines the performance of both life and property & casualty (P&C) insurance companies, highlighting that while the industry faced headwinds, listed insurers outperformed and are showing signs of recovery in the second half of the year.

Main Points

Life Insurance

• Industry Performance: The life insurance industry saw a decline in gross written premiums (GWP) by 8.5% yoy in 1H18, primarily due to strict product regulations, diminishing wealth effect, rising yields of bank wealth management products, and a high premium base in 1H17.
• Listed Insurers Outperform: Despite industry headwinds, listed life insurers outperformed with GWP growth ranging from +3.7% to +22.6% yoy. China Life (+4.2%), Ping An (+22.6%), CPIC (+18.5%), NCI (+10.8%), and Taiping (+3.7%) all showed positive growth.
• Market Share Increase: The market share of listed life insurers rose significantly to 60.2% in 1H18 from 53.2% in 2017.
• NBV Performance: NBV growth plunged in 1H18, but the report indicates a positive outlook for 2H18 due to improved underwriting figures in Q2, better protection-type product mix, and easing reserve pressure.
• Premium Structure Optimization: Listed insurers have transitioned from single premium models to regular premium structures, which is expected to drive long-term growth.
• Agent Team Stability: Agent numbers remained stable, and training efforts have helped maintain productivity despite a decline in FYP per agent.
• Embedded Value Growth: Embedded value (EV) and residual margin for listed insurers showed steady growth in 1H18, with Ping An Life experiencing the fastest EV growth at +15.3%.
• Investment Performance: Investment assets grew solidly in 1H18, and fixed income investments are expected to provide stable yields in 2H18, despite stock market volatility.

Property & Casualty (P&C) Insurance

• Industry Growth: The P&C insurance industry experienced growth of +14.18% yoy in 1H18, with listed companies outperforming the industry.
• Auto Insurance Trends: Auto insurance growth slowed, and the expense ratio increased for PICC P&C, Ping An P&C, and CPIC P&C. However, CBIRC's regulatory measures are expected to reduce fee competition and improve underwriting profit in 2H18.
• Non-Auto Growth: Non-auto insurance growth accelerated significantly, with average growth reaching +43.0% yoy. CPIC P&C and TPI showed particularly strong growth in non-auto segments.
• Regulatory Impact: CBIRC's strengthened supervision of auto insurance rates and fees, along with potential changes in tax treatment, is expected to ease the effective tax rate in 2H18.

Key Information

• Growth Drivers: Protection-type insurance demand is robust, indicating a large addressable market. The aging population and increased insurance awareness are supporting long-term growth.
• Market Challenges: 1H18 was marked by market turbulence, regulatory changes, and a shift in consumer behavior.
• Sector Outlook: The report upgrades the sector rating to OUTPERFORM, citing improved underwriting performance, business transition, and stable investment yields in 2H18.
• Top Picks: China Taiping (966 HK) is highlighted as a top pick due to its strong agent team, business transition progress, and stable P&C business.

Summary of Key Figures

• Investment Assets: CPIC's investment assets increased by +8.9% yoy, while Taiping and PICC P&C recorded +6.87% and +6.49% respectively.
• Third-Party AuM Growth: CPIC led in third-party asset management growth with +19.7% yoy, reaching Rmb403.7bn.
• Effective Tax Rate: Increased significantly in 1H18, with PICC P&C at 28.3%, Ping An P&C at 37.7%, CPIC P&C at 52.9%, and TPI at 60.7%. The report expects a reduction in 2H18 due to regulatory changes.

Conclusion

The China insurance sector, particularly life insurance, is well-positioned for long-term growth. While 1H18 was challenging, the report is optimistic about 2H18, citing improved underwriting performance, stable investment yields, and regulatory support. The sector rating is upgraded to OUTPERFORM, with China Taiping highlighted as a top pick.