Zhongtai: Market confidence in equity markets has a window of repair, tightly grasp the opportunities in the non-banking sector's beta.

Zhongtai released a research report stating that listed insurance companies have completed the disclosure of their 1Q25 quarterly reports. Overall, the profit growth rate shows significant differentiation mainly due to differences in base numbers, while the performance on the liability side remains stable. Zhongtai indicates that the equity market is a game of winners and losers. With the promotion of a series of regulatory policies, confidence in the equity market has a window of recovery, and seizing the opportunity in the non-banking sector is crucial. Key points from Zhongtai are as follows: Special analysis of the new criteria: Compared with the same period last year, the net profit in 1Q25 increased by 1.4% on a comparable basis, and the non-annualized ROE decreased from 4.2% in 1Q24 to 4.0% in 1Q25, slightly better than the previously relatively pessimistic expectations. At the end of 1Q25, the average net assets attributable to A-share listed insurance companies remained stable compared to the beginning of the year, with life insurance showing the highest growth rate (4.5%) and New China Life showing the lowest (-17.0%). The ratio of other comprehensive income/net profit was -98.0%, with life insurance (20.9%) showing the smallest difference in this ratio. Zhongtai calculated that the insurance profit in 1Q25 increased by 27.3% year-on-year, mainly due to the low base number for the same period, and the good performance of life insurance business in 1Q25 combined with a sharp increase in the insurance profit of the property insurance business; the decrease in the investment yield differential quarter-on-quarter was 25.8%, and the differentiation year-on-year was the core reason for the differentiated net profit growth rate. The simple annualized average net investment return rate of listed insurance companies in 1Q25 was 3.08% (1Q24: 3.19%); the simple annualized average total investment return rate was 4.06% (1Q24: 4.08%). Life insurance business: Quantity reduced, price increased, cost reduced and efficiency increased are the core reasons for the improvement of NBV. The average NBV growth rate of listed insurance companies in 1Q25 was about 20%, and the improvement in the value rate was the core. The year-on-year growth rates of NBV from high to low were: New China Life (67.9%), Ping An (34.9%), PICC (31.5%), Taiping Life (11.3%), China Life (4.8%). There was a clear differentiation in the quarterly new business growth rates: individual insurance was dragged down by the slow start, and the structure of new policies in bancassurance improved. In terms of new business growth rates, the quarterly new single premium growth rate on a quarterly basis in 1Q24 increased by 2.9%. In terms of the improvement in value rate, it was attributed to: 1) the scheduled interest rate cut in July 2023 and September 2024, the comprehensive liability cost remained stable with a decrease, and the new business interest rate spread widened; 2) optimization of product and term structures. The lump-sum payment scale in the bancassurance channel decreased significantly, the periodical payment scale increased significantly, driving the improvement of the payment structure and the value contribution; 3) actively reducing costs and increasing efficiency. Implementing the 'unified reporting and sales' model in the bancassurance channel brought a significant reduction in actual expenses. The individual insurance channel explored commission deferral, optimized the basic model design, and improved the efficiency of cost inputs. Property insurance business: A substantial increase in underwriting profit on a low base will lay the foundation for the whole year. In 1Q25 under the new criteria, listed insurance companies collectively achieved insurance service income in the property insurance business of 249.635 billion yuan, an increase of 4.0% year-on-year, achieved a comprehensive underwriting cost rate of 95.7%, representing a significant decrease of 2.8 percentage points year-on-year; realized underwriting profit under the new criteria was 10.653 billion yuan, nearly doubling year-on-year. This was mainly due to the low base of the same period, challenged by accidents such as low temperature, rain, snow, and freezing, and the growth in traffic and travel challenging the underwriting business. Listed insurance companies collectively achieved a year-on-year growth of 3.2% in original premium income from auto insurance in 1Q25, and good cost control levels assisted in improving the underwriting profit of auto insurance; according to data from the Emergency Management Department, natural disasters in China in 1Q25 were mainly geological disasters, with direct economic losses of nearly 10.16 billion yuan (1Q24: 23.76 billion yuan), and the claims ratio significantly improved (especially in February), driving a substantial improvement in the non-auto insurance underwriting profit. Risks: The macroeconomic recovery falling below expectations drags down long-term interest rates and the equity market sharply declines; the transformation of the life insurance industry continues to be below expectations.