Positive Investment Performance Boosts Profit Growth for Listed Insurers

In the first half of the year, the decline in interest rates led to a reduction in the redeployment gains of listed insurance companies, resulting in a year-on-year decline in net investment returns.

However, the equity investment returns under a high dividend allocation style have significantly increased, driving improvements in the total and comprehensive investment returns of insurance funds.

In the first half of 2024, the combined net profit attributable to the parent company of five listed insurance companies increased by 11.4%, with a year-on-year increase of 52.5% in the second quarter, mainly driven by asset-side improvements, a significant increase in equity investment returns under a high dividend allocation style, and the appreciation of bond fair values against the backdrop of declining interest rates.

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The decline in interest rates reduced the gains from asset redeployment, and the net investment return rate declined year-on-year.

However, the equity investment returns under a high dividend allocation style have significantly increased, driving improvements in the total and comprehensive investment returns.

Positive investment performance drove positive growth in operating profits.

Although the operating profit investment return rate is locked at 4.5%, the improvement in investments still helps to increase operating profits, thereby increasing the level of growth in investment assets.

The rebound in Margin (profit) drives a significant increase in life insurance NBV (New Business Value).

From the perspective of life insurance business, the improvement in payment periods coupled with the reduction in fees for bank insurance has led to a rebound in Margin, driving a significant increase in NBV.

The significant improvement in NBV Margin has driven the continuation of high NBV growth.

In the first half of the year, the growth rates of NBV for listed insurance companies were as follows: PICC (115.6%) > Taiping (108.3%) > New China Life (57.7%) > Sunshine (39.9%) > CPIC (29.5%) > AIA (25%) > China Life (18.6%) > Ping An (11%).

In the first half of the year, the NBV Margin of listed insurance companies rebounded significantly year-on-year, with the Margin and the increase in margins as follows: AIA (53.9%/3.3pct) > China Life (20.1%/4.2pct) > Taiping (24.6%/12.4pct) > Ping An (24.2%/6.5pct) > Sunshine (19.1%/6.7pct) > New China Life (18.8%/12pct) > CPIC (18.7%/6pct) > PICC (11.1%/6.4pct).

The driving factors vary, mainly due to the reduction in fees for "unified reporting and execution" in the bank insurance channel, and the significant compression of lump-sum transactions in bank insurance (China Life, New China Life), increasing the proportion of 5-year/6-year transactions (CPIC, Taiping, Ping An), and increasing the proportion of 10-year transactions (China Life, New China Life).

Due to a high base and the phased impact of "unified reporting and execution" on the enthusiasm for bank-end sales, as well as some companies reducing lump-sum transactions in bank insurance (New China Life, China Life), new policy premiums generally declined.

The growth rates of new policy premiums in the first half of the year were as follows: AIA (14.1%) > China Life (-6.4%) > Taiping (-8.8%) > Sunshine (-9%) > PICC (-9.7%) > CPIC (-11.8%) > Ping An (-19%) > New China Life (-41.7%), with all except AIA experiencing negative growth.

Looking at the product form, the increasing sales of life insurance with a 3% guaranteed interest rate continue to be popular, driving an increase in the proportion of traditional life insurance.

From September, the guaranteed interest rate for traditional insurance will be reduced to 2.5%, and it is expected that insurance companies will shift to selling dividend insurance.

In the individual insurance channel, NBV has seen comprehensive positive growth, with agents showing a stable and improving trend and continuous improvement in quality.

Due to the continued strong demand for savings insurance, most companies have continued to grow their new policy premiums on a high base, coupled with improved payment periods and the reduction in the guaranteed interest rate driving the increase in Margin, and the individual insurance channel NBV continues to grow rapidly.

In the first half of the year, the growth rates of NBV in the individual insurance channel for listed insurance companies were as follows: PICC (90.8%) > Taiping (59.8%) > Sunshine (47.8%) > New China Life (39.5%) > CPIC (21.5%) > AIA (15.3%) > China Life (14.6%) > Ping An (10.8%), among which, the NBV Margin performance was as follows: AIA (67.2%/4.4pct) > Sunshine (34.7%/7.5pct) > Ping An (33.0%/10.5pct) > China Life (30.6%/5.4pct) > Hua (30.5%/+8.6pct) > CPIC (29.4%/2.8pct) > PICC (28.7%/12.7pct) > Taiping (27.5%/8.9pct).

The performance of new policy premiums was as follows: Sunshine (15.7%) > CPIC (10%) > AIA (7.8%) > Taiping (7.3%) > PICC (6.5%) > China Life (5.2%) > New China Life (0.4%) > Ping An (-24.5%), with Ping An's negative growth mainly due to a high base and a reduction in the sale of universal accounts.

Agents have shown a stable and improving trend, with continuous improvement in quality and a significant increase in productivity.

In terms of scale, as of the end of the first half of the year, the number of agents was as follows: China Life (629,000) > Ping An (340,000) > Taiping (228,000) > CPIC (183,000) > New China Life (139,000) > PICC Life (82,000), with year-on-year growth rates of China Life (-0.8%) > Ping An (-2%) > Taiping (-3%) > PICC Life (-7.7%) > CPIC (-8%) > New China Life (-10.3%), and from a quarter-on-quarter perspective, in the first half of the year, the number of agents for China Life and Ping An increased by 1.1% and 2.1% respectively, showing a clear trend of stabilization and improvement.

In terms of productivity, the productivity of agents in each insurance company continued to grow, with the productivity and growth rates as follows: Ping An (29,651 yuan/-7.3%) > China Life (24,883 yuan/10.7%) > Taiping (23,415 yuan/28.9%) > CPIC (22,332 yuan/31.7%) > PICC Life (14,458 yuan/8.2%) > New China Life (10,400 yuan/28.3%), with Ping An's negative growth mainly due to a high base and the reduction in the scale of universal insurance.

In terms of activity rates, the activity rates of agents continued to improve, with CPIC performing exceptionally well, with the activity rates and growth rates in the first half of the year as follows: CPIC (73.8%/4.1pct) > Ping An (55.9%/1.8pct).

In the bank insurance channel, NBV has seen comprehensive positive growth, with agents showing continuous improvement in quality, mainly benefiting from the reduction in bank insurance fees and the improvement in payment period structure (China Life, New China Life compressing lump-sum transactions, Taiping increasing the proportion of 5-year transactions), with a significant increase in NBV Margin driving high NBV growth, and new policy premiums generally declining.

The overall performance of the Comprehensive Cost Ratio (COR) in property insurance is excellent.

The growth rate of property insurance premiums has slowed down, but the overall performance of the COR is excellent.

In the first half of the year, the growth of original insurance premiums in property insurance has slowed down, with CPIC (7.7%) > ZhongAn (5.3%) > Ping An (4.1%) > PICC (3.7%), with the industry as a whole at 4.5%.

The difference in growth rates is mainly brought by non-motor insurance, with the growth rate of motor insurance in the range of 2.5%-3.5%, with little difference.

The growth rate of non-motor insurance is as follows: CPIC (12.3%) > Ping An (5.3%) > PICC (4.6%), with the industry as a whole at 6.2%.

Specifically, the growth rate of non-motor insurance in CPIC is relatively fast, mainly driven by the high growth of property insurance (22.6%) and health insurance (21.4%), with the growth rate of agricultural insurance slowing down to 9.8% due to the delay in bidding; the slowdown in the growth rate of non-motor insurance in Ping An is mainly due to the negative growth of guarantee insurance premiums, which was -1.8 billion yuan in the first half of the year, and the premium income of liability insurance decreased by 0.3% year-on-year, but health insurance and agricultural insurance premiums achieved high growth year-on-year, with growth rates of 43.5% and 32.9% respectively; PICC's property insurance is mainly affected by the delay in bidding for agricultural insurance and the reduction of unprofitable commercial agricultural insurance, resulting in a slowdown in the growth rate of agricultural insurance to 3.4%, and the drag of credit insurance decreased by 6.3% year-on-year, with a steady growth of 5.7% in health insurance.

Looking at the quarters, the growth rates of premium income for PICC and CPIC in the first half of the year have rebounded compared to the first quarter.

On the one hand, this is due to the narrowing decline in per-vehicle premiums, which has led to an improvement in the growth rate of motor insurance premiums on a quarter-on-quarter basis.

On the other hand, it is due to the gradual development of government-related business bidding; Ping An and ZhongAn have slowed down on a quarter-on-quarter basis, among which, only ZhongAn's premium income in the second quarter was negative growth, mainly due to the contraction of external traffic investment, resulting in pressure on the growth of health insurance and the active contraction of guarantee insurance business from a risk control perspective.

In terms of underwriting profit and growth, China Property Insurance (96.2%/0.4pct) < CPIC Property Insurance (97.1%/-0.8pct) < Ping An Property Insurance (97.8%/-0.2pct) < ZhongAn Online (97.9%/2.1pct), China Property Insurance COR has increased due to natural disasters, but the absolute level is better than other companies; CPIC Property Insurance COR has improved the most, mainly due to the improvement in the payout rate; ZhongAn Online COR has increased the most, mainly due to the increase in COR of guarantee insurance and health insurance.

Specifically, China Property Insurance motor insurance COR decreased by 0.3pct to 96.4% year-on-year, mainly due to the stricter "unified reporting and execution" supervision, resulting in a decrease in the expense rate by 1.8pct; the non-motor insurance COR is 95.8%, increased by 1.5pct year-on-year, agricultural insurance COR decreased by 2pct to 89% year-on-year, showing excellent performance, benefiting from the reduction of unprofitable commercial agricultural insurance business; the COR of health insurance, liability insurance, property insurance, and other insurance types increased by 1.4pct, 1.3pct, 7.6pct, and 3.5pct to 99.9%, 104.1%, 99.6%, and 87.6% respectively year-on-year.

CPIC motor insurance COR decreased by 0.9pct to 97.1% year-on-year, mainly benefiting from the stricter expense supervision, resulting in a decrease in the expense rate; non-motor insurance COR decreased by 0.7pct to 97.2% year-on-year, the company's focus on high-cost business areas, health insurance, agricultural insurance, and property insurance decreased by 0.4pct, 0.3pct, and 1.2pct to 100.8%, 97.8%, and 94.1% respectively, showing comprehensive improvement, and liability insurance remained the same at 99.4% year-on-year.

(Note: Some specific terms and company names may not have direct English equivalents and have been translated based on the context provided.

)Ping An Auto Insurance's Combined Ratio (COR) increased by 1 percentage point year-on-year, mainly due to the increase in the loss ratio caused by natural disasters.

The Non-Motor Insurance COR saw a significant improvement of 2.7 percentage points, primarily because the company suspended the addition of new financing guarantee insurance business in the fourth quarter of 2023.

The guarantee insurance COR decreased by 10.9 percentage points year-on-year to 106.8%, and the liability insurance COR was optimized by 1.5 percentage points year-on-year.

Overall, the mid-year reports of insurance companies exceeded expectations.

In terms of profit, the high dividend allocation style brought about a high elasticity growth in investment income; in life insurance, the Margin increased year-on-year, leading to double-digit growth in New Business Value (NBV), with the Margin improvement stemming from the reduction of fees in the "reporting and action integration" of bank insurance, the adjustment of preset interest rates, and the extension of product payment periods, resulting in a stable and high-quality trend in human resources.

In property insurance, the slowdown in premium growth is due to the decline in per-vehicle premiums on one hand, and on the other hand, the contraction of loss-making businesses and the delay in policy-related business bidding.

However, the overall COR performance is good, due to the stricter regulation of auto insurance costs under the "reporting and action integration" leading to a decrease in cost rates, and the optimization of the structure of non-motor insurance business.

Although the stock market fluctuated downward in July and August, profits are expected to continue growing in 2023 due to the extremely low base in 2023.

In the second half of 2023, after the discontinuation of traditional insurance with a 3.5% interest rate, the base for each insurance company from August to December is low, and the growth pressure in the second half of the year is not significant.

It will be necessary to observe the sales situation of dividend insurance after the traditional insurance preset interest rate is adjusted to 2.5%.

In property insurance, due to the large disaster in the third quarter of 2023, the base for underwriting and profit is low.

In September, without extreme natural disasters, the turning point in the third-quarter performance is expected.

In fact, the cost of existing liabilities for large insurance companies is not high.

Companies stabilize net investment returns by extending the duration and increasing the allocation of high dividend assets.

Net investment income, as the basic plate of insurance capital investment, has little pressure to cover costs, and the guaranteed interest rate of subsequent new policies will decrease, coupled with the increase in the proportion of dividend insurance, which will gradually lower the overall liability cost.

However, the current insurance company valuation implies a low assumption of investment return rate.

The short-term valuation upward elasticity comes from market beta and expectations for the third-quarter report, while the long-term comes from the improvement of the overly pessimistic expectation of the interest spread, leading to the lifting of the valuation center.