CHINA INSURANCE SECTOR：MARCH PREMIUMS – EXCEPTIONAL GROWTH CONTINUED IN LIFE; ROBUST P&C
Life premiums recorded strong growth of 4.4-61.9% in March (vs. -44.0-41.9%in February, due to CNY effect). Taiping led, at 61.9% yoy, on a low base, andNCI reported positive growth for the first time since January. Based on PingAn’s disclosure, FYP (ex-Grp) recorded the highest growth, at 87.6% (vs. 62.9%in February and 37.3% in January), likely driven by the agency channel, whichshould bode well for VNB growth. P&C premiums were largely stable, with keyplayers’ growth ranging from 9.0% to 35.3% (vs. 13.8-32.7% in February),despite slower auto sales. We maintain our positive view on China insurers.
Life – a decent acceleration
Taiping led March growth, at 61.9% (vs. -11.5% in February), followed by PingAn at 45.9% (+41.9%), CPIC at 33.0% (+26.8%), China Life at 31.1% (-17.7%),PICC Group at 21.0% (-48.7%) and NCI at 4.4% (-44.0%). According toTaiping’s disclosure, the strong growth in March was driven mainly byindividual regular premiums (+66.9%) and bancassurance single premiums(+107.2%, thanks to a low base). In terms of 1Q17 performance, CPIC led, at43.1% yoy (vs. +47.6% in 2M17), followed by Ping An at 40.7% (+39.4%),Taiping at 35.9% (+30.3%), China Life at 22.1% (+19.7%), PICC Group at -7.0%(-10.9%) and NCI at -20.0% (-29.6%). Based on Ping An’s disclosure, thecompany achieved FYP growth of 45.2% in 1Q17, which should bode well forVNB growth.
P&C – stable growth
The P&C business recorded stable premium growth in March, with headlinegrowth ranging from 2.8% to 27.7% and underlying (ex-VAT impact) growthranging from 9.0% to 35.3% (vs. 13.8-64.8% in February). On a monthly basis,Ping An led, at 35.3% yoy (vs. +32.7% in February), driven by a strong recoveryin non-auto premiums (+157.2% on a low base), followed by Ch Continent at24.2% (+19.5%), PICC at 19.2% (+23.1%), Taiping at 16.0% (+64.8%) and CPICat 9.0% (+13.8%). On a YTD basis, Ping An led, at 30.6% (vs. +28.4% in 2M17),followed by Ch Continent at 20.1% (+17.7%), PICC at 15.2% (+12.7%), ChTaiping at 12.9% (+11.1%) and CPIC at 7.9% (+7.4%).
Staying positive on Life on attractive valuation and strong fundamentals
We believe the current valuation of 0.9x 2017E P/EV for life insurers (assuminga 3.5% long-term investment return) is unjustified, given the sector’s stronggrowth momentum. We believe current low deposit rates (competitive yieldsfor insurers) and rising market yields should support insurers’ investmentspread. Continued fund flow away from bank deposits into financial products(including life policies) should support a strong growth outlook for the sector.As such, we reiterate our positive view on the Chinese life insurance sector.Our top picks are China Life and Ch Taiping. Investment risks includesignificant weakness in China’s investment markets, asset quality risks andweaker-than-expected growth.
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