Profit: the bright performance of the investment side drives the positive growth of profit, and the increase of reserves drives down the growth rate. 1) In 2021, the net profits of Ping An, Guoshou, CPIC, Xinhua and PICC were – 29.0%, + 1.3%, + 9.2%, + 4.6% and + 7.8% year-on-year respectively. Except Ping An, they all achieved positive growth, mainly due to the bright performance of the asset side. In addition, the increase in reserves caused by the downward movement of the yield curve of 750 treasury bonds lowered the growth rate of net profits. 2) The growth rate of operating profit slowed down except AIA, and the growth rate of operating profit of CPIC life insurance took the lead. In 2021, the operating profit of Ping An and CPIC group’s parent company increased by + 6.1% and + 13.5% year-on-year respectively, and the operating profit of Ping An Life Insurance, CPIC life insurance and AIA increased by + 3.5%, + 9.2% and + 7.9% year-on-year respectively. Except AIA, the growth of operating profit slowed down. The operating profit of CPIC life insurance has increased rapidly. We judge that it is related to the amortization characteristics of historical dividend products of CPIC (the amortization mode of low before high after low). Therefore, the decline of NBV in the current period has limited impact on the operating profit. 3) At the end of 2021, the remaining marginal balances of Ping An, Guoshou, CPIC and Xinhua were – 2.0%, – 0.2%, – 0.8% and – 0.5% year-on-year respectively, and the growth rate changed from positive to negative, which was mainly dragged down by NBV. 4) In 2021, the impact of changes in accounting estimates of Ping An, Guoshou, CPIC and Xinhua on pre tax profit was – 22.6 billion, – 38.3 billion, – 14.6 billion and – 12.1 billion respectively, mainly due to the decline of discount rate caused by the decline of 750 day treasury bond yield. 5) The performance of investment side is differentiated, and CPIC, Xinhua and PICC perform better. The total return on investment of Ping An, Guoshou, CPIC, Xinhua, PICC, Taiping and AIA were 4.0%, 5.0%, 5.7%, 5.9%, 5.8%, 5.4% and 4.4% respectively. All companies grasped the high point of the market and cashed in the floating profit of some equity assets, resulting in a significant increase in the bid ask spread. Ping An’s total return on investment decreased significantly, mainly due to the profit and loss of changes in fair value caused by stock market fluctuations of – 10.3 billion under IFRS 9, reducing the total investment income (compared with – 6.5 billion in the same period last year) and the impairment of 24.4 billion investment assets affected by China Fortune Land Development Co.Ltd(600340) impact. Considering the floating profits and losses of available for sale financial assets, the comprehensive investment returns of Ping An, Guoshou, Taibao, Xinhua and PICC were 4.9%, 4.0%, 5.4% and 5.1% respectively, with a year-on-year increase of -1.5pct- 2.2pct.、 – 2.1pct.、 – 2.6pct.， Both fell sharply year-on-year. We expect it to be mainly due to the impact of the shock of the blue chip performance of high dividend banks included in available for sale financial assets.
Life insurance: the premium and NBV are under pressure as a whole, and AIA outperforms its peers. 1) ① 2021 Ping An Insurance (Group) Company Of China Ltd(601318)
China Pacific Insurance (Group) Co.Ltd(601601) , China Taiping’s embedded value increased by 5.1%, 8.5% and 14.3% respectively over the beginning of the year The embedded value of China Life Insurance Company Limited(601628) , New China Life Insurance Company Ltd(601336) , Ping An Life Insurance, CPIC life insurance, PICC Life Insurance (including PICC Health), Taiping Life Insurance and AIA increased by 12.2%, 7.6%, 6.3%, 10.3%, 8.8%, 19.3% and 11.9% respectively compared with the beginning of the year. The growth rate slowed down except AIA. The general decline of EV growth rate is mainly due to the decline of NBV contribution. In 2021, the “NBV (including dispersion effect) / opening life insurance EV” of Ping An Life Insurance, CPIC life insurance, China Life Insurance Company Limited(601628) , New China Life Insurance Company Ltd(601336) , PICC Life Insurance (including health insurance), China Taiping and AIA were 5.3%, 4.3%, 4.2%, 2.5%, 4.1%, 6.1% and 5.2% respectively, with a year-on-year ratio of – 2.3pct- 2.3pct.、- 2.0pct.、 – 2.0pct.、 – 3.1pct.、 – 1.6pct.、 + 0.7pct.。 ② In 2021, the operating deviation of Ping An Life Insurance, Xinhua, Guoshou and PICC Life Insurance (including health insurance) decreased significantly, and all except Xinhua made negative contributions to ev. We judge that it is mainly affected by operational factors such as policy continuation rate, surrender rate and expense investment. In terms of the continuation rate, factors such as the intensification of agent shedding and the impact of the epidemic on Residents’ income led to the decline of the continuation rate of some companies. In 2021, the 13-month policy continuation rates of Ping An, Guoshou, CPIC, Xinhua and PICC were + 0.8pct- 5.2pct.、 – 5.4pct.、 – 6.2pct.、 – 10.2pct.， In terms of expenses, all insurance companies (life insurance commission expenses + business management fees) / NBV increased year-on-year. 2) NBV growth differentiation intensified, Taiping performed well, and AIA grew faster than expected. The NBV of Ping An, Guoshou, Taibao, Xinhua, PICC, Taiping and AIA were affected by the epidemic and the “de capacity” of the industry, with a year-on-year increase of – 23.6%, – 23.3%, – 24.8%, – 34.9%, – 34.9%, + 3.6%, + 21.7% and + 14.5% respectively. 3) In 2021, the life insurance industry has entered a period of in-depth adjustment. The mismatch between the agent’s ability and circle and the customer’s demand for professional services is prominent, and the agent channel is facing the pressure of transformation. At the end of 2021, the scale of agents of Ping An, Guoshou, CPIC, Xinhua, PICC and Taiping were – 41.4%, – 40.5%, – 29.9%, – 35.8%, + 1.0% and – 55.1% respectively year-on-year. Taiping Life Insurance was superior to its peers, mainly because it planned to increase staff and provided strong support to newcomers in terms of subsidies, products and continuous cultivation. 4) In terms of production capacity, in 2021, the first year scale premiums of Guoshou, Ping An, CPIC, Xinhua, Taiping and PICC agents were + 15.3%, + 24.1%, + 42.3%, + 4.1%, + 30.5% and + 36.2% year-on-year. We judge that the structural adjustment of the life insurance team is gradually taking effect. Among the lost manpower, low production capacity is the main, and the proportion of high-quality manpower is increasing.
Property insurance: the inflection point of auto insurance premium has emerged, and the differentiation of business strategy has brought about the difference of comprehensive cost rate. 1) In 2021, the growth rate of property insurance premium slowed down, and the premium income of the whole industry was + 0.7% year-on-year. The premium income of PICC Property Insurance, Ping An Property Insurance and CPIC property insurance were + 3.8%, – 5.5% and + 3.3% year-on-year respectively, which was mainly affected by the reduction of average vehicle premium caused by the comprehensive reform of vehicle insurance started in September 20. 2) The inflection point of auto insurance premium has been found, and the auto insurance premiums of Listed Companies in Q4 single quarter have returned to positive growth. The premium income of PICC Property Insurance, Ping An Property Insurance, CPIC property insurance and auto insurance Q4 was + 8.9%, + 8.7%, + 8.3% year-on-year in a single quarter, showing a strong recovery trend. 3) In 2021, the comprehensive cost rates of PICC Property Insurance, Ping An Property Insurance and CPIC property insurance were 99.6%, 98.0% and 99.1% respectively, with a year-on-year increase of + 0.7pct, – 1.1pct and + 0.1pct respectively, We judge that the difference in comprehensive cost rate is mainly caused by the differentiation of business strategies. PICC Property Insurance and CPIC property insurance increase the development of policy health insurance and agricultural insurance with high compensation rate, while Ping An Property Insurance focuses on the development of personal auto insurance business with strong profitability.
Specifically, the loss ratio of PICC Property Insurance, Ping An Property Insurance and CPIC property insurance was + 7.5pct+ 6.5pct.、 + 8.4pct.， We expect that it is mainly caused by the comprehensive reform of vehicle insurance and natural disasters; Year on year expense ratio -6.8pct- 7.6pct.、- 8.3pct.， Our judgment is mainly due to the fact that under the comprehensive reform of automobile insurance, the supervision has set a ceiling of 25% on the additional fee rate, which forces all insurance companies to improve their operating capacity.
Investment suggestions: 1) in terms of life insurance: in the short term, Q1 in 2022 is still under great pressure under the high base, and NBV of Ping An, Guoshou, CPIC, Xinhua, AIA and Taiping in the first quarter is still under great pressure under the high base. The growth rate is expected to be – 34.4%, – 18.7%, – 46.4%, – 37.5%, – 4.7% and – 30.7% respectively; Subsequently, as the base decreases, the negative growth is expected to gradually narrow. In the long run, insurance still has room for growth, the transformation of agent channels is progressing steadily, the medical and nursing industry chain is continuously improved, and the service ecological layout is gradually taking shape. The incremental market demand brought by the third pillar endowment insurance will drive the NBV of Ping An, CPIC, AIA and other large companies into a stable growth cycle.
At present, the overall valuation of insurance stocks is at a historical low. As of April 8, 2022pev of China Life Insurance Company Limited(601628) , Ping An Insurance (Group) Company Of China Ltd(601318) , China Pacific Insurance (Group) Co.Ltd(601601) , New China Life Insurance Company Ltd(601336) , New China Life Insurance Company Ltd(601336) A shares were 0.56, 0.60, 0.42 and 0.40 times respectively, and 2022pev of AIA and China Taiping H shares were 1.60 and 0.14 times respectively, which were 0.7%, 0.8%, 0.5%, 0.7%, 25.7% and 1.0% of the historical valuation quantile respectively. We believe that the current insurance stocks have a high risk return ratio. At present, there is still some pressure on the liability side under the high base, but from the perspective of the whole year, there is a large possibility of month on month growth. The market expectation on the liability side has been pessimistic enough. Once there is marginal improvement and the asset side repair logic continues to be fulfilled, the previously extremely undervalued insurance sector may usher in the valuation repair market. It is recommended that AIA h, Ping An Insurance (Group) Company Of China Ltd(601318) , China Pacific Insurance (Group) Co.Ltd(601601) 601.
2) in terms of property insurance, the cost brought by the fee reform has decreased significantly, which has strengthened the channel and brand advantages of the leader, and the degree is greater than expected. We expect to usher in a year of significant improvement in the industry competition pattern. After the comprehensive reform, the price advantage of small and medium-sized companies converges, and they may gradually withdraw from the auto insurance business under continuous losses. With the deep control of the auto insurance industry chain and the advantages of data, pricing and services, the leading property insurance is expected to further increase the market share.
The premium of China Property Insurance from January to February in 2022 was + 13.6% year-on-year; We expect Q1 cor to be about 97.2% in 2022. There is a certain pressure under the high base of last year, but the recovery trend is obvious. At present, the corresponding Pb of China Property Insurance in 2022 is 0.66X, which is in the 0.07% quantile since listing and 0.13% quantile since 12 years. It is still at the historical undervalued level. The short-term bad landing + long-term upward recovery appears. It is optimistic that the subsequent valuation will be repaired to the range of 0.8x-1xpb. We recommend China Property Insurance H.
Risk tip: Residents’ income is expected to repair slowly; The sales of guaranteed products are less than expected; The progress and driving effect of differentiated service layout are less than expected
