Across The Border

China insurers to benefit as mainland investors take a shine to guaranteed yield products

Ping An Insurance is among insurance companies posting fast growth in income from product sales

PUBLISHED : Tuesday, 23 February, 2016, 4:23pm
UPDATED : Thursday, 25 February, 2016, 10:52am

The growing appeal of life insurance products among mainlanders who’ve lost faith in China’s stock markets as a store of value could add up to a bullish story for Ping An Insurance and other mainland insurers, according to analysts.

Wary of the volatile stock market, many investors are seeking safer ground, including insurance products with guaranteed rates of return.

And that’s something which insurance companies are aggressively marketing. Following the government’s deregulation last year, insurance companies have churned out investments to meet the growing demand safer, but slower savings vehicles – leveraging their ability to package together products with guaranteed yields of up to 3.5 per cent.

China’s insurance sector premium income grew by 20 per cent in 2015, bringing in 2.4 trillion yuan (HK$2.9 trillion) according to figures from the China Insurance Regulatory Commission, the industry supervisor.

The personal life insurance sub sector recorded a 25 per cent year-on-year gain in premium income, outperformed the property and casualty sub sector, which grew by 11 per cent year on year.

Dayton Wang, an analyst with Guotai Junan International recommends Ping An Insurance, a company dual listed in Hong Kong and Shanghai as his top pick in the sector.

“Ping An’s investment capabilities make it less sensitive to investment performance than peer listed life insurers, which has been under pressure amid China’s dropping bond yields and a gloomy global capital market,” said Wang. “Meanwhile, the expected initial public offering of Lufax, a peer to peer lending platform under the group may help lift the company’s valuation.”

Wang has a target price of HK$49.90 for the insurer’s Hong Kong-listed shares.

Analysts from Bank of China International also gave Ping An’s A shares a “buy” rating in early February.

“Ping An’s strengths in comprehensive financial services and internet technology will create more internal synergies while improving the company’s resilience against market volatilities,” they wrote in a note, giving the insurer’s Shanghai-listed shares a price target of 45.32 yuan.

Similar to it peers, Ping An has been aggressive in signing up new policy holders, according to its January premiums, Credit Suisse said in a research note on Monday. Credit Suisse has an “outperform” rating on Ping An’s Hong Kong listed shares and a target price of HK$65.

Premiums from the life sector jumped 41 per cent r on year, compared to 6 per cent on year growth in the property and casualty sector.

However, analysts advise investors to be wary of potential changes in the operating environment.

JP Morgan analysts highlighted concerns of a potential price war among the non life sector, saying it was a potential negative that could drag down those companies that underwrite for a broader sector of the economy.

“The non-life market is expected to face underwriting margin compression (auto premium cuts) for the next two to three years. Also, we see limited underwriting margin improvement potential for non-auto insurance considering a weak economic growth outlook, high competition, and more capital injection from new players,” JP Morgan said in a January report.

JP Morgan also warned against insurers’ ambition for creating the bank-insurance hybrid business model, through aggressive acquisition of banks’ stakes.

“Raising banking ownership for Chinese insurers with less sufficient shareholders’ funds and/or relatively short duration policyholders’ funds should increase the risk profile for insurers.”

The analysts said they were concerned about People’s Insurance Company of China (PICC) Group’s recent purchase of the stake in Hua Xia Bank and an extra stake increase in Industrial Bank.They added that they prefer Ping An Group with a business streamlining outlook in its noncore non-insurance business including peer to peer lending, trust fund and banking.

In late December, PICC Property and Casualty, a subsidiary of PICC Group, announced it had acquired a 20 per cent stake in Chinese mid-sized lender Huaxia Bank from Deutsche Bank AG for 25.7 billion yuan.

Earlier in mid July, the PICC Group announced it had bought a 3.19 per cent stake in Industrial Bank for 10.1 billion yuan.

Meanwhile, PICC Group announced that its life premiums in January surged 110 per cent year on year to 48.6 billion yuan, while health premiums increased by 88 per cent year on year. PICC P&C recorded 9.2 per cent growth in January year on year.

Credit Suisse rated PICC “outperform” and attached a price target of HK$5.5.

“The transformation of life business away from bancassurance to agency is key to PICC Group’s value of new business growth and margin enhancement, where we saw signs of improvement in January,” Credit Suisse analysts said in a note Mondau.

They also highlighted PICC’s health insurance business, as PICC Health has already won approval for its tax-exempt health insurance products. Given its large health division and first mover advantage, PICC is likely to take advantage of the rapid expansion of China’s health insurance market, the note said.