China Pacific Insurance Earnings: New Business Value Gain Exceeds Peers

Following largely in-line results, we maintained our fair value estimate for China Pacific Insurance 601601, or CPIC, at CNY 26 per A share and HKD 30 per H share. With the H share trading at a sharp discount to the A shares, we prefer the H share over the relatively expensive A share. First-half new business value, or NBV, growth increased to 31.5% year on year from 16.6% growth in the first quarter, largely in line with our expectations and likely ahead of peers in our coverage. We appreciate management’s efforts to enhance agent quality and its ability to deliver steady underwriting margins in the P&C insurance business over the past few years.

Thirteen percent and 305% NBV growth in the agent and bancassurance segments, respectively, drove this strong growth. The agent segment contributed 81% of total NBV in the first half. Core agent headcount largely stabilized in the second quarter, despite a 30% year-on-year decline in monthly average agent headcount in the first half of 2023. Positively, core agent productivity strongly improved 35% year on year, with new business-based commission income per core agent increasing 62% to CNY 7,482 per month, well above the monthly average worker salary in China. NBV contribution from the bancassurance segment strongly expanded to 19% from 6% in the year-ago period. We believe much of the bancassurance NBV growth was driven by sales of last-batch 3.5% pricing savings-type products, ended in July. We think the 3.0% pricing products are still attractive when compared with the five-year fixed deposit rate at 2.75% and 10-year government bond yield at around 2.60%; however, we think CPIC is likely to see a larger-than-peer slowdown in second-half NBV growth against the first half, given its above-peer NBV contribution from bancassurance sales and higher base that saw 13% year-on-year NBV growth in second-half 2022, in contrast to the 10%-80% declines for peers. As such, we maintained our 23% full-year NBV growth forecast in 2023.