Ping An’s new business value rebounds as premium sales rise

PUBLISHED : Monday, 10 December, 2012, 1:47pm
UPDATED : Monday, 10 December, 2012, 1:47pm

Ping An Insurance (Group), whose biggest shareholder HSBC Holdings agreed to sell its 15.6 per cent stake, said growth in new business value recovered in the second half of 2012 after a decline in the first six months.

The embedded value of new individual life policies “has resumed growth” and the most profitable, protection-type, 10- year or longer contracts sold through agents have “returned to the path of growth after some volatility in the first half,” chief insurance officer Li Yuanxiang said in a briefing in Guilin in southern Guangxi province last week.

Ping An’s new business value, which gauges the estimated profit from new policies sold, may rise 13 per cent in the second half as agent sales shift back to long-term risk-protection products, improving from a 9 per cent drop in the first half, Barclays said last week.

“We’re encouraged by the actions the company is taking to improve the quality of its agency force, including comprehensive training plans, well-designed sales support and monitor systems, and clear growth targets,” Barclays analysts led by Mark Kellock wrote after meeting Li. “The successful execution in agency is critical for future new business value growth -- a key driver of value creation.”

Ping An rose 1.5 per cent to HK$60.90 at the noon break in Hong Kong trading, extending this year’s rally to 19 per cent. The benchmark Hang Seng Index gained 0.4 per cent.

Margins of new business should be able to remain stable for the long term, a trend that investors including Thailand’s Charoen Pokphand Group that is buying the insurer’s stake from HSBC, care more about than the short-term numbers, Li said.

HSBC last week agreed to sell its stake in Ping An Insurance to Thai billionaire Dhanin Chearavanont’s Charoen for US$9.4 billion as Europe’s biggest bank by market value moves to revive profit and boost capital.

Ping An enjoys the highest individual agent productivity among Chinese insurers and the highest new-business profitability thanks to its strong presence in bigger cities and effective management of its agent forces, according to Core Pacific Yamaichi International.

Ping An’s agents averaged 7,316 yuan (US$1,175) in new business per month in the first half of this year, compared with 4,800 yuan at larger China Life Insurance and 4,400 yuan at China Pacific Insurance (Group), said Olive Xia, Core Pacific’s Shanghai-based analyst. Subsequently, Ping An’s new-business margin stood at 32 per cent for the period, more than double China Life’s and China Pacific’s, according to Xia.

“When we look at life insurers’ capital strength in real terms, we would also consider the impact of profits their business can generate in the future,” Joyce Huang, a Hong Kong- based director for insurance at Fitch Ratings, said on Monday. “If there’s any improvement in the profit margin of Ping An’s new business value, it will contribute positively to the company’s capital level.”

The company plans to boost the share of “high- productivity” agents, whose sales average more than 20,000 yuan per month compared to about 4,000 yuan by an “ordinary” agent, to 35 per cent from almost 19 per cent currently, Li said without giving a timeframe for the target.

Ping An also seeks to expand its presence to as much as 12 per cent of China’s counties from 8 per cent, a move that will boost premiums without sacrificing margins as it would be selling the same products in the less-wealthy regions as in big cities and will only pick the “relatively good” counties, he added.

Founded in 1988 as China’s first joint-stock insurer, Ping An has grown into the nation’s second-biggest insurance company, with 74 million clients, more than 175,000 employees, and about 500,000 agents. The change in its biggest shareholder won’t have any impact on the company’s insurance operations, Li said.

“The importance of agency cannot be understated, given this accounts for more than 90 per cent” of the company’s new business value each year, the Barclays analysts wrote. “Steadily increasing the number of county markets covered and increasing the productivity levels in these new markets could be a key driver of Ping An’s future new business growth.”

China’s insurance market expanded an average 19 per cent a year in the past decade to become the world’s sixth biggest, while insurers’ assets jumped tenfold, according to the China Insurance Regulatory Commission.

Premiums income declined 1.3 per cent in 2011 as regulators tightened rules on selling coverage over bank counters and insurers adjusted their product mix to improve profitability.

“The market remains good and the room for growth is huge, especially individual life insurance,” Li said. “One should not become sceptical about the potential for China’s insurance market because of the volatility caused by bancassurance.”