Event: on December 30, 2021, the China Banking and Insurance Regulatory Commission issued the notice on the regulatory rules for solvency of insurance companies (II), which represented the second generation phase II project of solvency for many years, and officially landed in the first quarter of 2022.
The overall goal of the second generation phase II project is risk oriented and problem oriented: a) risk oriented includes the penetration of the asset side and the separation of capital measurement and account classification; b) Problem orientation: the second generation of compensation project is committed to solving the problems exposed in the payment supervision of insurance companies in recent years, such as considering the possibility of downward housing prices, the caliber of investment real estate included in recognized capital, and increasing the minimum capital requirements for financing guarantee insurance;
Capital side: only part of the residual margin can be included in the core capital
Phase II project clearly states that "the insurance company shall classify the future surplus of the policy according to the remaining period of the policy, and the future surplus of the policy included in the core capital shall not exceed 35% of the core capital". The starting point of this amendment is that the capital contributed by shareholders is different from the future earnings in the degree of risk absorption, and the future earnings are greatly affected by actuarial assumptions;
Under the phase II project, first of all, only the future surplus obtained by discounting according to the remaining duration of the policy according to the corresponding capital return rate (13% or 10%) can be included in the core capital. Secondly, the capital at all levels of the insurance company is required to meet a series of limit standards. According to the three large-scale tests organized by the cbcirc in the past two years, we expect that under the phase II project, the recognition proportion of future earnings of listed life insurance companies will be about 65% - 90%, and the recognition proportion of Guoshou will be the highest;
In addition, the investment real estate required by the phase II project to be held by the insurance company in the form of real right or through the project company shall be recognized as recognized assets according to the cost model; It is also clear that insurance companies should fully withdraw long-term equity investment losses. Since the market value of Hua Xia Bank Co.Limited(600015) currently held is less than 50% of the book value, PICC Property insurance needs to forcibly withdraw impairment under phase II project, so as to reduce the actual capital;
Asset side: following the penetration principle, the interest rate risk decreased significantly
Under the phase II project, insurance companies must follow the principle of wearing as much as possible. For non basic assets that cannot be penetrated, the basic factor will be as high as 0.6 (the basic factor of gem and Kechuang board is only 0.45); In 2021, among the investment assets of Guoshou, Ping An Group, Taibao group and Xinhua, the proportion of non-standard assets is 15.1%, 12.1%, 22.3% and 23.3% respectively, and there may be a high concentration of some creditor's rights plans. We estimate that the minimum capital of non-basic assets of Xinhua will increase greatly;
The second phase of the project expands the asset category for measuring interest rate risk. No matter the accounting classification of creditor's rights assets is transactional financial assets, held to maturity financial assets or available for sale financial assets, interest rate risk can be hedged; Due to the large holding to maturity scale (accounting for 20% - 30% of the investable assets of listed insurance companies), the corresponding interest rate risk hedging effect is significant, which can basically offset the rise of minimum capital caused by other factors on the asset side;
Liability side: new serious diseases are worsening, and the minimum capital requirements for financing guarantee insurance have increased significantly
The second phase of the project increases the deterioration trend factor of serious diseases. The annual deterioration probability of men and women increases by 3% and 2% respectively, which is lower than the deterioration experience value of 5% - 6% of the current insurance companies. It is more explicit to express the deterioration degree of serious diseases;
The second phase of the project considers that the risk of financing guarantee insurance is mainly credit risk, so it draws lessons from the Basel agreement of the banking industry, benchmarking the capital adequacy ratio of banks and the solvency of financing credit guarantee insurance, changing the risk exposure from reserve to loan balance, and the minimum capital requirements have increased significantly;
Impact on Listed Companies: further optimization of industry structure
The numerator of repayment regulatory indicators is core capital and actual capital, which are affected by the capital side described above, and the denominator is the minimum capital, which is jointly affected by the asset side and liability side described above.
We believe that the minimum capital at the denominator end has decreased slightly as a whole, mainly because the reduction of interest rate risk can hedge the rise of other factors, but the actual capital will be reduced by the capital classification of future surplus. We estimate that the change range of comprehensive solvency adequacy ratio of Guoshou, Ping An, CPIC, Xinhua, Taiping and PICC under phase II project is + 30pct, - 30pct and - 25pct respectively, -65pct, 0pct and - 30pct, the decline of Xinhua's solvency is related to more non-standard products that cannot be penetrated;
Due to the capital classification requirements corresponding to future earnings, the decline of core adequacy ratio will be higher than that of comprehensive adequacy ratio, but the regulatory requirement of the former is only 50%, and the core adequacy ratio of listed companies is more than 200%. Therefore, we judge that even if the core capital is significantly down, the core adequacy ratio of large companies under phase II project can still be more than 100%, Small companies with solvency on the edge of regulation will be more impacted, so the pattern of the industry will be further improved
Investment suggestion: affected by the downward trend of agent income month on month, we expect that it will take some time to improve the liability side of listed life insurance companies. However, in the past six months, with the introduction of new Internet insurance regulations, the implementation of the second generation phase II project and the recent suspension of mutual treasure, the overall supply side pattern of the life insurance market is gradually optimized and the overall advantages of large companies are expanding, At the same time, considering that the average PEV of listed life insurance companies in 2022 has dropped to 0.5 times, we maintain the rating of "overweight" in the industry, and we mainly recommend AIA with excellent agent quality and China Life Insurance Company Limited(601628) with vitality in the recruitment entrance;
Risk warning event: the growth rate of new orders was lower than expected, the income of agents continued to decline, the sales supervision was further tightened, the long-term risk-free yield decreased significantly, and the equity market fell sharply.
