In 2021, the life insurance premium of the whole year was high before and low after, and the valuation of insurance stocks fell to a historical low. In 2021, the insurance industry achieved a total original premium income of 4.5 trillion yuan, a year-on-year increase of – 0.79%, of which the annual premium of life insurance was 3.3 trillion yuan, yoy-0.3%, showing a negative growth for the first time, and showing a high before and low after (January year-on-year + 13.83%). In January, due to the good start and serious illness speculation, the premiums of new life insurance policies rose sharply. The growth rates of original insurance premiums of Guoshou, Ping An, CPIC and Xinhua were + 13.13%, – 5.2%, + 8.79% and 12.78% respectively. Among them, the premiums of new insurance policies of Ping An personal business were + 31.04% year-on-year, significantly higher than – 14.90% in the same period of 2020. Since March, affected by the mismatch of supply and demand, the suspension of overdraft due to serious illness in the early stage and the continuous loss of agents, the new policy premium of Ping An personal insurance has declined sharply year-on-year. The new policy premium of Ping An personal insurance in March was yoy-17.1%, which turned negative after the high increase in January and February (YoY in January and February were + 31% and + 23.7% respectively). Although the marginal premium increased due to the increased closing efforts of insurance enterprises in December last year (the growth rate of personal insurance in a single month in December changed from negative to positive, with a year-on-year increase of + 3.5% (former value – 2%), there is still no obvious inflection point. The PEV valuation of the insurance sector continued to decline throughout the year, from 0.91x at the beginning of the year to 0.56x at the end of the year. At the end of the year, the PEV of Guoshou, Ping An, CPIC and Xinhua 2021e were 0.7x, 0.63x, 0.52x and 0.45X respectively.
The improvement of the epidemic and the rise of interest rates promoted the rise of insurance stocks at the beginning of the year. We believe that the rise of insurance stocks last week was mainly due to 1) the improvement of the epidemic situation brought about an increase in the activity rate of agents or driven by the marginal improvement of the liability side, 2) the interest rate is expected to stabilize and rise driven by the strong policy expectation of steady growth, and 3) the market style switching led to the repair of the valuation of individual stocks with large decline in the early stage. On the liability side, the increase in the activity rate of agents is expected to promote the growth of premiums in the short term. However, considering the impact of the high base, the suspension of speculation in serious diseases and the decline in the importance of a good start in the same period last year, the value of new orders and new businesses will still decline significantly from January to February this year. At the same time, considering that the number of agents has not reached the bottom and the capacity improvement is limited, the improvement power of the liability side is still insufficient in 2022.
The future valuation repair still depends on the performance of the asset side, which is positive due to the upward interest rate, the relaxation of real estate policy and the high undervalued value of the equity market. The policy regulation focuses on stability, and the orientation of active fiscal policy and broad monetary policy is clear. It is expected to underpin economic growth. The broad credit expectation superimposes the expectation of interest rate increase in the United States, and the long-term interest rate may usher in an inflection point, driving the valuation repair of insurance stocks. With the growth rate of social finance reaching a new high in January and strong steady growth, the policy is expected to push up the yield of 10-year Treasury bonds to 2.8%, which may fluctuate upward in the future. At the same time, the adverse impact of real estate investment on insurance companies has been fully reflected, and the policies of real estate financing and pre-sale funds have been continuously relaxed this year, and the real estate risk is controllable. In terms of equity investment, insurance stocks tend to underestimate the value of individual stocks with high dividends, which is in line with the style of this year’s equity market and is expected to achieve better investment returns.
Investment rating: at present, the insurance sector is at the bottom of historical valuation. The short-term benefit is the improvement of the epidemic situation, and the increase of agent activity rate has a positive pull on the premium; The strong expectation of steady growth policy leads to the stabilization and upward trend of interest rate; Real estate risk was mitigated and the investment side of insurance enterprises was improved. Although there is still great pressure on the liability side in the long run, and the inflection point needs to be further observed, the PEV of Guoshou, Ping An, Taibao and Xinhua 2022e corresponding to the current stock price are 0.64x, 0.59x, 0.48x and 0.42x respectively. Under the stimulation of short-term benefits, there are still valuation repair opportunities. As there was no clear inflection point on the liability side, we downgraded our rating to “neutral”. It is suggested to pay attention to AIA led by high-quality agents and Ping An Insurance (Group) Company Of China Ltd(601318) and China Pacific Insurance (Group) Co.Ltd(601601) with more thorough life insurance reform.
Risk factors: the impact of the epidemic worsened, the number of agents continued to decline, and the process of economic recovery was slow
