Key points of investment
Event: The company held the 2023 annual results conference. The summary of our thoughts and exchanges is as follows
The company optimizes and upgrades excellent insurance strategies, with clear goals. “One Vision” refers to relentlessly promoting the construction of an excellent global insurance group. The specific manifestations are: focusing on the main business, pursuing excellence, leading innovation, and managing modernity.
The “three goals” are: The immediate goal is to take solid steps in the excellent insurance strategy by 2025, that is, to unify the quality, structure, scale, speed, efficiency, and safety of development (in terms of specific quantitative goals, the annual compound premium growth rate is not less than 5%, the three-year average comprehensive cost ratio of property insurance is clearly superior to that of listed peers, and the three-year average return on long-term investment is no less than 10 pcts higher than the industry. (The three-year ROE, NBV growth rate, and market capitalization growth were superior to the market average). The medium-term goal is to reach a new level in the construction of the Excellent Insurance Group by 2027, that is, to provide more beneficial and effective insurance guarantees for high-quality economic development, and to function and play a more effective role in the financial system with Chinese characteristics. The long-term goal is to basically establish a world-leading global insurance group with comprehensive strength and international influence by 2035, and fully play the main role of the insurance industry in China's characteristic financial system.
Set goals and don't relax; they are rooted in excellent insurance strategies. The company adheres to a consistent underwriting profit target and strives to keep the comprehensive cost ratio (COR) of car insurance around 97%, and the non-car insurance COR within 100%. Under the new guidelines, the cumulative COR for each quarter in 2023 was 95.7%, 96.4%, 97.9%, and 97.6%, respectively, of which car insurance was undisclosed, 96.7%, 97.4%, and 96.9%, respectively. 3Q23 car insurance COR briefly exceeded 97%, but 4Q23 quickly narrowed down to the set target. The total net loss caused by the disaster from 2021 to 2023 was 9.5 billion yuan, respectively, 7
900 million yuan and 13.3 billion yuan. Under the influence of these unfavorable external environmental factors, it is not easy for the company to achieve the established COR target in 2023, mainly due to the company's adherence to an excellent insurance strategy.
The company's NEV insurance underwriting lost slightly in 2023, but the competitive advantage was ahead of the industry. The company estimates that the commercial insurance COR for NEV insurance in 2023 is about 7 pcts higher than the overall fuel vehicle level. We believe that regulation aims for the healthy and sustainable development of NEV insurance. Optimizing the NEV insurance pricing mechanism does not mean simply reducing the price, but rather improving the risk pricing capabilities of NEV insurance, and the competitiveness of leading insurers is expected to accelerate. We expect future potential actions to: 1) optimize pure risk premium estimates to improve the accuracy of pricing benchmarks; 2) liberalize independent pricing factors and expand from the current [0.65,1.35] to [0.5,1.5].
The car insurance business structure continues to be optimized, and the share of the home-owned car business is steadily increasing. The renewal rate for personal car insurance has been rising steadily in recent years. From 2019 to 2023, they were 68.6%, 73.1%, 75.9%, 76.7%, and 77.8%, respectively.
Auto insurance renewal rates have also been rising steadily in recent years, with 71.0%, 73.1%, 74.4%, and 75.9% respectively from 2020 to 2023. In 2023, the average premium for home-owned vehicle parts decreased by 1.3% year-on-year, and by 4.3% year-on-year for non-home-owned vehicles.
Since 4Q23, People's Insurance has taken the initiative to control the speed of the auto insurance business. (The monthly year-on-year growth rate of China People's Insurance Auto Insurance premiums from October 2023 to February 2024 was 6.3%, 5.4%, 3.8%, 2.9%, and -1.3%, respectively). We expect that, on the one hand, due to the misalignment of the Spring Festival holiday, the car insurance growth rate will slow down marginally; on the other hand, it will actively control the speed of the vehicle insurance business with high uncertainty and high cost competition.
Profit forecasting and investment rating: Optimize and upgrade excellent insurance strategies to ensure consistent profit goals. Maintaining the profit forecast, we expect net profit to be 296, 323, and 34.5 billion yuan in 2024-26. Currently, the company is the representative target of high-quality “high dividends” in the financial sector and maintains a “buy” rating.
Risk warning: High incidence of natural disasters, increased competition in the car insurance market