China re Group is the absolute leader of China's reinsurance market. In terms of property reinsurance, domestic business will benefit from non-car insurance growth and increased reinsurance demand for a long time, and overseas business is expected to share the global underwriting and investment upward cycle through overseas Chinese communities. In terms of life reinsurance, it is expected that the security business will be the company's long-term growth point, data and product creation advantages to achieve category expansion. We believe that the current valuation and fundamentals of the company have bottomed out, the expected dividend yield in 2023 has reached 9%, and ROE is expected to enter a cycle of gradual improvement. With reference to the cash return level of international peers, the company is valued at 0.3x PB in 2022, covering the "overweight" rating for the first time.
Reinsurance market: globalization, oligopoly competition and strong cyclical. (1) Globalization: reflected in global operation and global competition. Global operation is a necessary means for reinsurance companies to disperse catastrophe risks such as natural disasters. as a result, even in regional markets, market subjects often come from all over the world, such as 2-4 companies in China's property reinsurance market. 2-5 companies in the life reinsurance market are all overseas reinsurance companies. (2) oligopoly competition: global oligopoly companies occupy a dominant position by virtue of their long professional accumulation and advantages in brand, region and scale. From the point of view of the global market, the combined premium scale of the top five reinsurance companies exceeds the total size of 6-50. (3) strong periodicity: from underwriting cycle and investment cycle. Among them, the underwriting cycle is mainly driven by the catastrophe cycle, and the investment cycle is greatly affected by long-term interest rates. at present, the two cycles of the international market are in the upward stage.
China re Group: the absolute leader of China's reinsurance market. China re Group is the first reinsurance group in China, which listed in Hong Kong in October 2015. China re's main business comes from China, ranking first in the domestic market for a long time, with a clear leading edge. The main shareholders of the company are the Central Huijin and the Ministry of Finance, which hold 71.56% and 11.45% respectively. In addition, the social security fund holds 1.27%, and the actual circulation is relatively small. China reoperates other businesses such as property reinsurance, life reinsurance, property insurance direct insurance, asset management and insurance intermediaries. Among them, reinsurance business is its core business, property reinsurance business and personal reinsurance business are wholly owned by the company, and both contribute 42% of their profits in 2021. The company's property insurance direct insurance business is carried out through Dadi Insurance, which ranks sixth in market share, but its market share has declined in the past two years, and the profit pressure on the underwriting side is greater, with a comprehensive cost rate of 107% in 2021. China re's investment return performance is in the middle and upper reaches of the industry, with an average total investment return of 5.3% in the past, characterized by a higher proportion of overseas asset allocation.
Property reinsurance: domestic business will benefit from non-car insurance growth and increased reinsurance demand for a long time, and overseas business is expected to share the global underwriting and investment upward cycle through overseas Chinese communities. The property reinsurance business of China re is divided into domestic property reinsurance, overseas property reinsurance and bridge society. In 2021, the premium income of the three sectors is 35 billion yuan, 3.5 billion yuan and 13.3 billion yuan respectively, accounting for 67%, 7% and 26% of the property reinsurance premium income respectively. The overall comprehensive cost rate of property reinsurance business in 2021 is 99.39%, and the comprehensive cost rates of the above three sectors are 99.95%, 104.75% and 94.81%, respectively. In the past 3-5 years, the comprehensive cost rate of domestic property reinsurance business has been maintained at about 100% through cost adjustment, and the growth point lies in the rapid growth of the non-car insurance direct insurance market and the increase in the share ratio. Overseas property reinsurance business has suffered underwriting losses for five consecutive years, and its volume has been small. Qiaoshe relied on the obvious hardening of the international reinsurance market in 2021 and turned its underwriting profits into profits in 2021, making it the largest contributor to underwriting profits in property reinsurance.
Life reinsurance: it is expected that the indemnificatory business will be a long-term growth point, data and product creation advantages to achieve category expansion. The business of China Relife Reinsurance mainly comes from China, among which the security business is the biggest growth point.
China re Life Insurance achieved a premium income of 69.3 billion yuan in 2021, of which the premium income of domestic business was 55.3 billion yuan, an increase of 0.7% over the same period last year, accounting for 80%, while that of overseas business was 14 billion yuan, an increase of 21% over the same period last year, accounting for 20%. China re's advantage lies in the largest industry data and pricing power, and has participated in the creation of many innovative insurance types in recent years, such as special drug insurance, life-long cancer insurance and so on. Indemnificatory reinsurance is the largest growth point. in 2021, the company's domestic indemnificatory reinsurance realized premium income of 26 billion yuan, an increase of 25.9% over the same period last year, accounting for 47% of domestic business, while domestic savings reinsurance premium income was 4.5 billion yuan, down 62.3% from the same period last year, accounting for 8%. Domestic financial reinsurance premium income was 24.8 billion yuan, an increase of 11% over the same period last year, accounting for 45%
Risk factors: stock market decline brings short-term performance impact, low interest rate environment brings long-term investment pressure, reinsurance premium share decreases under the pressure of foreign competition, catastrophe loss exceeds expectations, exchange rate fluctuation risk.
Investment advice: give the company a valuation of 0.3x PB in 2022, with a "overweight" rating for the first time.
The valuation and fundamentals of the company are bottomed out, and ROE is expected to enter a gradual improvement cycle. We believe that the main reason for the decline in the company's share price since its listing is that the company's Chinese business is facing challenges from competitors, and that it does not have an advantage in terms of profitability, international competitiveness, shareholders' cash return and so on. In addition, the company listed in Hong Kong, in the face of global institutional investors, need to have sufficient liquidity support; the company liquidity is small, transactions are not active, lack of liquidity also brings valuation discount. In the future, the bright spot of the company's investment will still come from the opportunities in the Chinese market, especially from the growth and penetration of the insurance market related to China's non-car insurance and life insurance; at the same time, as China's manufacturing and infrastructure go global, the company's overseas layout is also expected to give full play to China's advantages and share the upward cycle of underwriting and investment in the international market. We estimate that the annual net profit of China Reinsurance 2022E/2023E/2024E is 68.54 trillion RMB RMB, respectively, and the corresponding ROE is 7.3%, 8% and 8.2% respectively, which is stepping into a gradual improvement cycle.
With reference to the cash return level of international peers, the company is valued at 0.3x PB in 2022, covering the "overweight" rating for the first time. Limited by the fierce competition of global oligarchs, the overall ROE of the reinsurance business model is not high, it is difficult to have a high valuation; dividend and repurchase are important means of stable valuation. Based on the advantages of the Chinese market, China is making up for the shortcomings of the overseas market, the dividend yield under the undervaluation of the company has a basis comparable to that of the global counterparts, and the upward underwriting cycle in the international market is conducive to the improvement of the performance of the Bridge Society, and the attractiveness of the stock price is increasing. With reference to the cash return level of international peers, we give the company 0.3x PB in 2022, corresponding to a target price of HK $0.80 and a target price corresponding to a dividend yield of 7% in 2023, giving a "overweight" rating for the first time.
