Soochow: Asset-liability resonance drives high growth in insurance performance, maintaining industry "accumulate" rating.

Soochow released a research report stating that there are opportunities for improvement on both the liabilities and assets side of insurance, with low valuation and low holdings, ready for both offense and defense. 1) The bank believes that the market demand for savings remains strong, and under the continued guidance of regulation and the proactive transformation of insurance companies, the cost of liabilities is expected to gradually decrease, easing the pressure on interest spreads. 2) Recently, the yield on the ten-year government bond has risen to around 1.81%. The bank predicts that with the future economic recovery in China, if long-term interest rates continue to rise, the pressure on the investment returns of insurance companies in fixed-income securities will be eased. 3) Currently, public fund holdings of insurance stocks remain low, and valuations are responding adequately to negative factors. As of March 31, 2025, the valuation of the insurance sector was at 0.52-0.77 times the estimated EP/EV for 2025, at a historical low, and the industry maintains a "buy" rating. The main points of Soochow are as follows: Significant increase in net profit attributable to shareholders, stable and improving dividend returns 1) Driven by the revival of investments, the net profit attributable to shareholders of listed insurance companies increased by over 80% in 2024, with New China Life and China Life increasing by 201% and 132% respectively, leading the industry, mainly due to their high proportion of equity investments, most of which are designated as FVTPL. 2) Net profit increased, with gains in CKH HOLDINGS FVOCI bonds driving the net assets of listed insurance companies to increase by 6% since the beginning of the year. 3) Dividends per share of listed insurance companies have generally increased, although the dividend payout ratio has declined, primarily due to fluctuations in insurance profits, with the need to smooth dividend growth. The dividend yields of AH-listed insurance companies are at high levels. New China Life's dividend payout ratio remains flat year-over-year, with a dividend growth of 198%, significantly exceeding expectations. Life insurance: Increase in value rate drives high NBV growth, actuarial assumptions adjustments solidify EV results 1) Premiums: Due to factors such as the integration of banks and insurance distribution channels and the high base in 2023, the growth rate of new annual premiums of listed insurance companies has been under short-term pressure, with the single premium performance relatively stable, and the proportion of traditional insurance in the insurance product structure continues to increase. 2) Channels: The transformation of individual insurance teams continues to yield results. The total number of staff of listed insurance companies increased by 2.8% since the beginning of the year, and by 0.6% since mid-year, with Ping An growing by 4.6% since the beginning of the year. While the staff size stabilizes, the per capita productivity continues to improve. The value contribution of bank-insurance channels continues to increase. Influenced by the integration of banks and insurance, the business volume of bank-insurance agency agreements has significantly decreased, with poor performance in new business growth, but the decrease in expense ratios and improvement in business structure have brought about a significant increase in value rate. The average NBV share of the bank-insurance channels of listed insurance companies is 30.3%, an increase of 10.1% year-on-year. 3) EV/NBV: Achieving high growth with comparable calibers. In 2024, the investment return assumptions of listed insurance companies were lowered from 4.5% to 4%, and the risk discount rate was also lowered synchronously, further solidifying the evaluation results. The total EV of listed insurance companies increased by 5.5% since the beginning of the year, with China Life achieving the highest growth rate of 11.2%, leading the industry. NBV continued to grow rapidly on a high base, with a comparable caliber growth rate exceeding 40% in total, with PBANK of China Life (114%), CPIC (94%), and PICC (88%) leading the way, while Ping An and China Life lagged behind but also achieved growth of over 20%. The significant increase in NBV margins is the main driver of NBV growth, with an average increase of 8.4% for the value rates of listed insurance companies on a comparable basis. The bank believes the main contributing factors are the expected lowering of interest rates, the decrease in expenses following the integration of bank-insurance channels, and optimization of the business structure. 4) With insurance companies strengthening their liability duration management and optimizing liability costs in 2024, the sensitivity of NBV to investment returns has significantly decreased. Property insurance: Steady growth in premium income, comprehensive cost ratio affected by major disasters 1) Premiums: Overall, there is steady growth, with non-auto insurance accounting for an increasing proportion. Premiums for PICC, Ping An, and CPIC increased by +4.3%, +6.5%, and +6.8% respectively year-over-year, with a total market share ratio decrease of 0.7%. The average non-auto insurance premium share of listed insurance companies increased by 1.3%, mainly due to rapid growth in business such as health insurance. 2) Comprehensive cost ratio: Major disasters pushed up the comprehensive cost ratio, but the absolute level remains good. The average comprehensive cost ratio of listed insurance companies is 98.4%, all achieving underwriting profits. The average comprehensive cost ratio increased by 0.3%, mainly influenced by major disasters. Ping An Insurance's business saw a significant decrease in losses, with a 2.3% decrease in the comprehensive cost ratio. Investments: The proportion of bonds continues to increase, total and comprehensive investment returns significantly improved 1) Investment asset size saw a high growth, with the combined net assets of the five listed insurance companies in A-shares increasing by 21% year-over-year. 2) The rebound in the stock market led to higher investment returns. The average net investment return of listed insurance companies decreased by 0.2% year-over-year, mainly due to the impact of declining interest rates, while the total and comprehensive investment returns increased by an average of 2.3% and 3.4% respectively year-over-year, primarily driven by the rebound in the stock market. The comprehensive investment return also benefited from the bull market in bonds. 3) Continued increase in allocation towards bond investments, with an increase in the proportion of FVOCI stocks. The average bond allocation of listed insurance companies at the end of the year was 58.5%, an increase of +5.2% from the beginning of the year. Overall, there was an increase in stock allocation and a decrease in fund allocation, with a general increase in the allocation of FVOCI stocks, representing an average increase of +10.8% to 33.7% in the proportion of stock investments. Risk warning: Downward trend in long-term interest rates; continued downturn in the stock market; new business growth lower than expected.