Ping An View:
Current situation of comprehensive reform of auto insurance: remarkable results in price reduction, insurance increase and quality improvement. Since the comprehensive reform of auto insurance was implemented in September 2020, the auto insurance market has changed significantly. 1) On the income side, the auto insurance market presents a new situation of “double reduction” of premium income and average single premium. The premium of leading insurance companies has a relatively small decline and the market share has increased. The property insurance market shows a development trend of “the strong is always strong”. 2) On the cost side, the increase of loss ratio is greater than the decrease of expense ratio, and the comprehensive cost ratio increases as a whole. 3) On the profit side, the comprehensive reform of auto insurance further enhanced the Matthew effect in the property insurance market, and the profit space of small and medium-sized insurance enterprises was squeezed again. The contribution of the “old three” auto insurance underwriting profit increased. Compared with overseas, after the comprehensive reform, there is still some room for the decline of the automobile insurance cost rate, but the automobile insurance market has a trend of further concentration to the leading insurance enterprises.
Two decades of auto insurance reform: step by step and develop for the better. The market-oriented reform of China’s auto insurance rate can be roughly divided into three stages: the first market-oriented reform stage of auto insurance rate (20012007), the pilot stage of uniform terms and rate adjustment of auto insurance (20072020), and the comprehensive reform stage of auto insurance (2020 to now). 1) The first round of vehicle reform: from putting into collection, from giving insurance companies independent pricing power to unifying vehicle insurance terms and rates, but the increase of market participants intensifies market competition, resulting in abnormally high vehicle insurance market expense rate. 2) The second round of vehicle reform: the focus of the reform is to reduce prices and fees, which is divided into three steps. By lowering the lower limit of the floating coefficient of commercial auto insurance rate, reducing the level of commercial auto insurance rate and compressing the cost space of insurance enterprises, insurance companies are forced to make accurate pricing and promote the transformation of the market from “cost war” and “price war” to product and service competition. 3) Third wheel vehicle reform: it began in September 2020. The traditional vehicle insurance reform mainly includes deepening the reform of commercial vehicle fees and the reform of new traffic compulsory insurance. On December 14, 2021, the Insurance Industry Association officially issued the exclusive terms of commercial insurance for new energy vehicles (Trial) and the model terms of accident insurance for drivers and passengers of new energy vehicles (Trial), which are conducive to improving risk protection on the one hand and accurate pricing for insurance companies on the other hand, so as to alleviate the pressure of compensation and improve the profits of insurance enterprises Improve the underwriting enthusiasm of enterprises.
Profit model of property insurance: underwriting and investment are driven by two wheels, and the comprehensive cost rate is the key. Roe = (1-comprehensive cost rate) underwriting leverage + return on investment investment leverage. With the steady growth of premium income, the comprehensive cost rate is the key factor affecting the company’s profit. Leading insurance companies with outstanding advantages such as pricing ability, channel control and claim settlement services will maintain underwriting profits and help roe remain high.
Investment suggestions: the leading insurance companies have the advantages of pricing, loss setting, channels and services, and their cost and compensation pressure drop ability is better than that of the industry. The auto insurance market share of leading insurance companies such as PICC, Ping An and CPIC has further increased, and continue to realize excess underwriting profits; Since September 2020, subject to the decline of average unit premium, the subject matter of pure property insurance (China Property Insurance) of Hong Kong stocks has been significantly callback and the valuation is at the bottom of history. With the weakening of the impact of the comprehensive reform base of auto insurance, the growth rate of auto insurance has been corrected and rebounded rapidly since 21q4, and the total underwriting profit is expected to improve. It is suggested to pay attention to the investment opportunities of the property insurance industry.
Risk tips: 1) the strength of auto insurance reform policy is less than expected. 2) With the deepening of fee reform and the decline of average vehicle premium, the growth rate of premium continues to decline, and the underwriting profit continues to be under pressure. 3) The growth of motor vehicle market is less than expected.
