EPS decreased by 12.1%
China People's Insurance Company announced the 2023 results on March 25. The EPS RMB0.5 comparable caliber decreased by 12.1% year over year, lower than our expectations of RMB0.57. Affected by investment fluctuations, the Group's total return on investment fell from 4.6% in the previous year to 3.3% in 2023. DPS RMB0.16, slightly lower than RMB0.17 the previous year, and the decline was lower than the decline in EPS. Life insurance's new business value (NBV) grew strongly, with a year-on-year increase of 105% on a comparable scale. The increase in NBV profit margins was the main driving factor. The comprehensive cost rate for industrial insurance was 97.8%, and the comparable caliber increased by 1.2 pct year on year. Due to the loss rate increasing by 1.2 pct, the cost rate remained flat year on year. Considering investment fluctuations, we adjusted 2024-2026EPS to RMB0.59/0.64/0.69 (previous value: RMB0.69/0.79/-), maintained the target price of RMB5.6 (A) /HKD3.8 (H), and maintained the buy/hold (A) rating.
Life insurance: Strong growth in NBV
Life insurance health insurance NBV grew strongly, and the comparable caliber increased 105% year over year; the scale reached RMB6.5 bn, which is also the highest level in the company's history. Among them, the growth in health insurance was particularly strong, with life insurance/health insurance NBV increasing by 70%/183% respectively. Considering that life insurance's total new policy premium (FYP) increased by only 12% in 2023, this means that NBV's profit margin has increased significantly. Despite rapid growth in value profit, cash profit declined year over year. Affected by investment fluctuations, Life Health Insurance's comparable profit fell 30% year over year. China People's Insurance reduced the embedded value (EV) actuarial assumption in 2023. The return on investment fell from 5% to 4.75% (universal dividend) and 4.5% (traditional insurance), and the discount rate fell from 10% to 9%, which is slightly relaxed compared to the industry. We expect the company's life health insurance NBV to grow 9.4% in 2024.
Property insurance: comprehensive improvement of non-car insurance coverage
The comparable caliber of China Financial Auto Insurance's COR increased by 2.4 pct to 96.9% year on year, the loss rate increased by 2.1 pct, and the cost rate increased by 0.3 pct. The rise in travel in 2023 and more frequent catastrophes may have an impact on car insurance COR. Non-car insurance has improved across the board. We estimate that the COR comparison for non-car insurance decreased by 1.1 pct to 99.1% year over year. This is the first time since 2019 that non-car insurance has achieved overall underwriting profits, reflecting the positive progress made by the company in improving the quality of coverage over the past few years. Among them, Yijian Insurance (97.7%) showed significant year-on-year improvement; although corporate financial insurance (103.8%) and liability insurance (107%) failed to achieve underwriting profits, both reduced COR; agricultural insurance COR (95.8%) increased slightly and remained at a relatively healthy level; other businesses (95.5%) performed well. We expect COR to remain stable in 2024.
The balance sheet is sound
China People's Insurance core/comprehensive solvency ratios were 194%/251% respectively at the end of 2023, which is at a healthy level. The company's ROE in 2023 was 9.6%, a slight decrease from the double digits in previous years. As investment performance stabilizes, we expect its ROE to return to double digits. We estimate the ROE for 2024 to be 10.3%, and profit growth rate 22%.
Risk warning: NBV growth has deteriorated sharply, COR has deteriorated drastically, and there have been significant losses in investment.