The liability side of life insurance is facing the adjustment of actuarial assumptions or large negative deviation of operation: affected by the increase of orphan orders caused by the sharp loss of agents, black intermediary arbitrage and action deformation under radical assessment, the policy continuation rate of life insurance companies has decreased significantly since 2020. Guoshou, Ping An, The 13-month continuation rate of CPIC and Xinhua 21h policies decreased by 8.4, 0.5, 5.2 and 2.2pct respectively year-on-year. At the same time, due to the shrinkage of new orders and values, the cost rate pressure of life insurance companies will also increase. We expect that the above two factors will make life insurance companies adjust actuarial assumptions or make large negative operating deviations, which will be transmitted to NBV, Core indicators such as EV and OPAT: Taking Ping An Life Insurance as an example, according to the sensitivity test of its 21 year mid-term report, if the failure rate of the policy increases by 10% or the maintenance cost increases by 10%, its NBV will lose 3.4% and 0.9%;
Under the policy of stabilizing the economy, the asset quality of life insurance companies will be consolidated: on the one hand, with the introduction of various monetary policies in China, the strength of stabilizing the economy has been strengthened, and the value of some banks and real estate companies has been repaired, while insurance companies have a large proportion of long-term equity investment in these two industries. On the other hand, some impairment reserves have been accrued in 21 years, For example, Ping An reported that it had accrued 35.9 billion impairment reserves for China Fortune Land Development Co.Ltd(600340) in the middle of 21 years, accounting for 2 / 3 of its total exposure to China Fortune Land Development Co.Ltd(600340) , and the risk was released;
The quality of agents in China is better, and the strength of products and additional services has increased
We expect that the number of AIA China agents will be about 43000 at the end of the year, which is basically the same as that at the beginning of the year. The introduction of elite peer executives and the recruitment of 10000 plans carried out in the year 21 have a certain effect; Since 2020, the two major institutions in Nanjing and Yangzhou have made breakthroughs in manpower. In terms of new institutions, we expect that there are 1300-1400 agents in Chengdu, Tianjin, Shijiazhuang and Wuhan, which will open soon, which can bring about 2% NBV increment to China. We expect that the NBV growth rate of AIA in China will be 8% – 10% in 21-22 years, which is better than that of Chinese counterparts;
Since the establishment of its subsidiary in China last year, AIA China has significantly strengthened its operation. For example, after 22 years of success, AIA China has more health care housekeepers, more calm and serious illness project management services and other additional rights and interests;
Bancassurance business is expected to bring value increment to HK region
The exclusive agency contract signed between AIA group and Bank of East Asia (BEA) has officially entered into force in the second half of the 21st century. Bea has 59 outlets and 49 wealth management centers in Hong Kong, China. It is the largest local bank in Hong Kong. Although the value rate of bancassurance is lower than that of individual insurance, the advantages of BEA outlets are expected to bring certain NBV increment to AIA group;
AIA Southeast Asia market has certain resilience
AIA Group continued to invest financial and training resources in Southeast Asian countries and began to produce results. For example, in 2021h1, the financial consultant agent in Thailand created 30% of the value of AIA Thailand with 15% manpower, and the financial consultant was able to sell more complex investment linked additional insurance. In the first half of 2021, there were 4371 MDRT (million round table agents) in AIA Thailand, Singapore and Malaysia, A year-on-year increase of 48%; We are optimistic about the continuous contribution of these high-capacity agents to AIA group NBV;
The rise of US debt is conducive to AIA’s financial indicators and dividends
AIA’s government debt allocation is mainly concentrated in Asian countries such as China and Thailand. However, due to the fact that a large proportion of its sales policies are denominated in US dollars (Hong Kong, SG and other regions), for the principle of currency matching, AIA’s corporate bonds are mostly American corporate bonds. According to the mid-term report of 21 years, the current corporate bonds account for 52% of AIA group’s debt investment, Therefore, the rise of US bond interest rate will make the reinvestment interest income of AIA creditor’s rights rise;
The investment income corresponding to AIA’s operating profit (OPAT) is the actual income of interest and the long-term expected income of equity real estate. Therefore, the rise of bond interest will really thicken AIA’s OPAT, and AIA’s dividend is linked to OPAT and FSG;
AIA’s valuation is at a low position in recent two years
From the perspective of valuation, the current AIA share price corresponds to 1.71 times of PEV in 22 years, while the average PEV since the outbreak of the epidemic in 2020 is 1.91 times, and the average PEV in the past five years is 1.86 times;
