China Insurance Earnings: Investment Headwinds Continue, but NBV Growth in Line; Prefer Ping An

We maintain our fair value estimates for Ping An Insurance 601318, China Pacific Insurance, or CPIC, and New China Life Insurance, or NCI, at CNY 65 per A-share (HKD 71 per H-share), CNY 26 per A-share (HKD 30 per H-share) and CNY 23 per A-share (HKD 26 per H-share), respectively. Following in-line third-quarter results, we leave our 2023 new business value, or NBV, projections unchanged for these three insurers.

As expected, Ping An and CPIC continued to deliver stronger-than-peer growth momentum, with cumulative nine-month NBV growing 30% and 37% year on year, respectively. Ping An delivered a 94% year-on-year increase in NBV per agent and CPIC a 38% increase in agent new premium. NCI did not disclose third-quarter NBV, but we expect it decelerated from the first half and remains weaker than peers’, given slower new premium growth and narrower margins.

We expect a significant slowdown in fourth-quarter sales industrywide as insurers shift their focus to product transition, agent training, and New Year sales. But Ping An and CPIC should continue to outperform, on successful agent reform. CPIC should be less affected by the tightened regulations on New Year presales, in our view.

Year-on-year contraction in cumulative nine-month net profits widened to 6%, 24%, and 15% for Ping An, CPIC and NCI, from 1% and 9% declines for Ping An and CPIC, and 9% growth for NCI in the first half, on weaker investment gains as a result of the faltering stock market and flat bond yields. The higher earnings volatility raises investors’ concern about future dividend outlooks. We prefer Ping An among Chinese insurers as we like Ping An’s strong growth momentum in the agent channel. Its management appeared to be more committed to a progressive dividend policy than peers, despite downward pressure on operating profits in 2023.