Investors have been concern about Chinese insurers’ weak “jump-start” sales to the growth compared to the value of new business growth. However, analysts from DBS Research felt that the structural drivers in the industry remain intact as contributions from renewal policies continue to rise and that negatives have been priced in and may even be overdone.
Ping An Insurance
Ping An Insurance is the second highest among China insurers for renewal premium with 59.3 percent of its total gross premium in 1H2017. Being stronger on value, it is less exposed to the weaker than expected “jump-start” sales and its overall impact on its value of new business is expected to be offset by higher margin from better product mix.
With bond yield rising, Ping An Insurance should experience a higher investment return and release of its reserve as higher yield will result in lower required reserve. This will further assist Ping An Insurance in offsetting the weaker “jump-start” sales.
Being a major backer of fintech medtech in China, Ping An Insurance has invested in Lufax and Ping An Good Doctor. They will be a potential upside for Ping An Insurance as they are both planning a H-Share IPO. With the IPO, it will unlock the value of its investments in these companies.
Analysts from DBS Research reiterated their “Buy” call for Ping An Insurance’s H-Share with a target price of HK$100.
China Taiping Insurance
Down a notch from Ping An Insurance, China Taiping Insurance’s renewal premium accounted for 50.6 percent of total gross premium in 1H2017 which is the middle range among Chinese insurers. The impact of the lower “jump-start” sales for China Taiping Insurance should be offset by the better margin as these products offer less protection elements to them.
With the rising credit spread in China, China Taiping Insurance appears to be the main beneficiary among its peers. This is due to its low recurring yield base of 4.7 percent in 1H2017 compared to its peers’ 4.6 percent to 5.3 percent. Based on the current environment, new money yield can easily reach over 4.8 percent.
The focus of China Taiping Insurance is on its annuity policies which results in a lengthy liability duration of 30 years. As a result, its asset-liability mismatch duration has reached over 20 years and is the widest among Chinese insurers. On the back of rising interest rates, China Taiping Insurance will be benefiting the most as compared to its peers.
Analysts from DBS Research reiterated their “Buy” call with a target price of HK$42.
China Pacific Insurance Group
With its renewal premium accounting for 62.9 percent of its total gross premium in 1H2017, it is the top of the cream among the Chinese insurers. As a result, China Pacific Insurance Group will be least affected among the Chinese insurers for the lower “jump-start” sales. Similar to Ping An Insurance and China Taiping Insurance, the lower “jump-start” sales will be partially offset by the better margin. In addition, China Pacific Insurance Group will benefit from the higher bond yield which translates to a higher investment income and see a reserve release.
China Pacific Insurance Group is focused on high long-term protection products which have a relatively long liability duration of 20 years. This attributed to the negative duration gap of approximately 13 years to 14 years. Given the rising interest rates, this will be an enhancement to China Pacific Insurance Group’s long-term book value.
Analysts from DBS Research reiterated their “Buy” call on China Pacific Insurance Group with a target price of HK$54.01.