Incident: Ping An of China released its 2023 annual report. For the full year of 2023, the Group achieved net operating profit of 117.989 billion yuan, -19.7% year on year; realized net profit of 85.665 billion yuan, -22.8% year on year, basic operating income per share was 6.66 yuan, -20.9% year on year, and annualized operating ROE was 13.2%, or 4.7 pct year on year.
Comment:
Life insurance and health insurance business: Individual insurance and banking insurance are growing at the same time, and strong product demand has led to a significant increase in NBV. Under comparable standards, in 2023, the company's life insurance and health insurance achieved a new business value of 39.262 billion yuan, +36.2% year over year, and a new business value ratio of 23.7%, -0.4 pct year on year. Based on the latest assumption of long-term return on investment with embedded value (4.5%) and risk discount rate (9.5%), the life insurance and health insurance business NBV was $31.08 billion and NBVM was 18.7%.
Individual insurance agent channel: As of the end of 2023, the number of personal insurance agents was 347,000, -22% compared with the same period last year. Ping An Life Insurance's agent channel is committed to high-quality transformation and promotes team structure optimization. Under a comparable caliber, the company's agent channel NBV in 2023 was +40.3%, and the per agent's income was +39.2%; per capita NBV increased significantly by 89.5% year over year. The company continued to focus on “excellent” to increase “excellent”, and the company's “excellent +” manpower share in 2023 was +25.8 pct year on year.
Banking insurance channel: Implementing the value transformation strategy, NBV was greatly improved. The company's banking insurance channel NBV was +77.7% year-on-year in 2023. On the one hand, the company continued to deepen the exclusive agency model with Ping An Bank, and on the other hand, selected advantages to expand external bank cooperation channels and outlets, strengthen standardized operation of branches, and the per capita production capacity of bank insurance continued to increase. Banking insurance channels, community grids, and other channels contributed 16.5% of Ping An Life Insurance's new business value in 2023. Looking at the margins, we believe that multiple channels will further implement value transformation, and the share of value contributions is expected to further increase.
Overall, the company determined the transformation and development of the life insurance and health insurance business in 2023, and the quality of the business continued to improve. The 13-month policy continuation rate was 92.8%, +2.5pct year on year; the 25-month policy continuation rate was 85.8%, +6.8pct year on year.
Financial insurance business: The business has maintained steady growth, and the natural disaster and guarantee insurance business have fluctuated COR. Ping An Financial Insurance achieved insurance service revenue of 313.458 billion yuan in 2023, +6.5% over the same period. The total cost ratio of the company's financial insurance business in 2023 was 100.7%, an increase of 1.1 pct over the previous year. It was mainly affected by natural disasters and credit insurance business, and COR was 98.4% after excluding the impact of guarantee insurance. The comprehensive cost rate for car insurance was 97.7%, +1.1 pct. Excluding the impact of natural disasters, the comprehensive cost rate for car insurance was 96.6%, and Ping An Insurance's car insurance business COR performance was superior to that of its peers in the market.
In terms of non-vehicle insurance, the COR for liability insurance, health insurance, accident insurance, corporate property insurance, and guarantee insurance was 106.3%, 96.0%, 97.7%, and 131.1% respectively. Guarantee insurance, liability insurance, etc. dragged down non-car insurance underwriting profits. Guarantee insurance COR fluctuations are mainly due to changes in the macroeconomic environment. The company has continued to shrink the guarantee insurance scale in recent years, and 2023Q4 has suspended the financing guarantee insurance business. We believe that non-auto insurance COR is expected to be greatly improved as exposure to related loss insurance types converges.
Asset side: 1) In terms of return on investment: As of the end of 2023, the company's total investment assets exceeded 4.72 trillion yuan, +9.0% compared to the beginning of the year. The comprehensive return on investment of the company's insurance portfolio in 2023 was 3.6%, +0.9pct year on year, 4.2% net return on investment, -0.5pct year on year, total return on investment 3.0%, +0.6% year over year. The slight year-on-year decline in return on net investment was mainly affected by the maturity of existing assets and the decline in return on new assets. 2) Investment structure: By the end of 2023, corporate bonds and stock investments accounted for 58.1% and 6.2% respectively, +3.5pct and 0.9pct, respectively. The company actively responds to the risk of falling interest rates, increasing the allocation of long-term types such as treasury bonds, local bonds, and government bonds. At the same time, it allocates equity assets in a balanced manner, increases the allocation of high-quality alternative investments and high-quality overseas assets, and expands the sources of investment income. 3) Long-term average return on investment: The average return on investment of the company's insurance portfolio in the past 10 years is higher than the adjusted assumption that the long-term return on investment with embedded value of 4.5% is higher. The company's average net return on investment, average total return on investment, and average comprehensive return on investment for the past 10 years were 5.2%, 5.0%, and 5.4%, respectively. 4) Real estate investment:
As of the end of 2023, real estate investment in the company's investment portfolio was 203.987 billion yuan, accounting for 4.3% of total investment assets. Among specific asset classes, property investment, debt investment and other equity investments accounted for 78.4%, 17.3% and 4.3% respectively. Property investment is measured by cost method, and is mainly invested in rental businesses such as high-quality commercial offices, logistics real estate, etc.
Dividend dividend: The company plans to pay a dividend of RMB 1.50 per share for the end of 2023. The annual dividend is 2.43 yuan per share, +0.4% over the same period. The cash dividend ratio (based on operating profit attributable to shareholders of the parent company) is 37.3%, and the total amount of dividends has increased for 12 consecutive years. The company said it will continue to increase the frequency of cash dividends and share high-quality development results with investors. We believe that this level of dividends is particularly difficult when operating profits to the mother are under year-on-year pressure (yoy -19.7%), highlighting the company's steady operation and focus on shareholder returns.
Liyuan analysis: The company's operating profit before tax in 2023 was 114.176 billion yuan, +0.6% year-on-year. Judging from the source split under the new insurance contract guidelines, the biggest contribution comes from marginal amortization of contract services and investment service performance, accounting for 65.5% and 22.4%, respectively, followed by non-financial risk adjustment changes and operating deviations, and others, accounting for 5.3% and 6.8%, respectively.
Inclusive value: 1) As of the end of 2023, the company's life insurance and health insurance business EV under a comparable caliber was $930.160 billion, compared to +6.3%. Under the latest caliber, EVs were $830,974 billion; 2) Based on comprehensive considerations of the macro environment and long-term interest rate trends, the company carefully lowered the long-term return on investment assumption of embedded value in the life insurance and health insurance business to 4.5%, -0.5pct and -1.5pct, respectively. Based on the above adjusted assumptions, the return on inclusive value operations was 11.2%, +0.2pct year over year. We believe that if the company adjusts the long-term return on investment and risk discount rate assumptions based on the actual investment environment and trends, the credibility of EVs is expected to improve markedly. Overall, the two major assumptions are adjusted at the same time, and the fluctuation of EVs is relatively limited.
Investment advice: We believe that the company's life insurance and health insurance business has gradually bottomed out and rebounded, the business quality has continued to improve, and the agency team is expected to stabilize. At the same time, multiple channels such as banking insurance and gridded communities are expected to continue to provide business growth, and the NBV share is expected to continue to rise. The annual dividend level highlights the company's ability to return shareholders. In the context of changes in the macro environment and continued decline in interest rates, the company promptly adjusts EV long-term investment return and risk discount rate assumptions, which is expected to consolidate EV measurement and improve its credibility, and enhance the reference significance of the company's P/EV valuation. The company's continuous reform performance on both sides of the company is compounded by the implementation of current intensive macroeconomic policies. Both sides of the asset liability side are expected to usher in marginal improvements, and the balance and liability balance is expected to be further optimized and the steady growth of EVs. It is recommended to pay attention.
Risk factors: The increase in the number and quality of the agent exhibition industry fell short of expectations; life insurance reforms fell short of expectations; development of multiple channels fell short of expectations; sharp decline in investment income due to sharp fluctuations in the capital market; and long-term interest rates fell beyond expectations.