Description of the event
China Financial Insurance disclosed its 2023 annual report, achieving net profit of 24.57 billion yuan, a year-on-year decrease of 15.6%; realized underwriting profit of 10.19 billion yuan, a year-on-year decrease of 29.1%
Incident comments
Natural disasters, recovery in mobility rates, and capital market shocks dragged down current profits. For the full year of 2023, the company achieved net profit of 24.57 billion yuan, a year-on-year decrease of 15.6%. Specifically, the decline in profit was mainly due to market shocks, which led to a decline in return on investment, which fell from 3.8% in 2022 to 3.5% in 2023; on the other hand, due to increased travel and frequent natural disasters, the comprehensive financial insurance cost ratio in 2023 rose from 96.6% to 97.8%.
Financial insurance underwriting is leading in profitability, and the leading position is stable. In 2023, China Financial Insurance achieved insurance service revenue of 457.20 billion yuan, an increase of 7.7% year on year; underwriting profitability declined slightly, mainly affected by natural disasters and increased travel rates. Underwriting profit decreased by 29.1 billion yuan to 10.19 billion yuan year on year. Looking at the types of insurance, the comprehensive cost rate of car insurance increased significantly, rising 2.4 pct to 96.9% over the previous year, while the comprehensive cost ratio of health insurance and liability insurance all improved. The company's original premium revenue market share was as high as 32.5%, ranking first in the industry, and has a strong scale advantage. At the same time, in terms of channels, 63.5% of premium revenue comes from personal agents and direct sales channels, which have strong fee control advantages, so it is expected that the company will maintain its underwriting profitability advantage in the future.
The return on investment performance was weak. Affected by market turbulence, the company achieved a total investment income of 20.81 billion yuan in 2023, down 1.6% from the previous year; the total return on investment fell from 3.8% to 3.5%. Although the pressure on asset allocation has increased, since there is no concept of debt cost in the financial insurance industry business model, there is no risk of interest spread loss that the life insurance market is concerned about. In terms of asset allocation, compared with the beginning of the year, the fixed income and cash allocation ratios declined, and the equity asset allocation ratio increased from 24.4% to 26.4%, with funds and stocks accounting for 7.7% and 6% respectively.
Solvency is leading, and future dividend capacity can be expected. The company proposed a dividend of 0.489 yuan per share, a year-on-year increase of 2.3%, a record high. Meanwhile, by the end of the year, China's financial insurance core solvency ratio was 208.7%, which is expected to be higher than the level of listed peers and regulatory requirements. Solvency is a core indicator of insurance industry supervision. Whether it is debt-side business development, asset allocation ratios, or dividends, insurance companies' ability to pay is limited by their ability to pay. A high solvency ratio, on the one hand, gives the company more room for operating independently, and on the other hand, it is also a guarantee and motivation for continuous dividends in the future.
I am optimistic about the improvement in both underwriting profit and investment income. In 2023, underwriting performance was slightly pressured due to relatively frequent natural disasters, and profits declined due to capital market fluctuations, but short-term factors such as natural disasters and market fluctuations did not affect the company's steady fundamentals and profitability. At the same time, along with increased supervision of market competition, it is judged that the medium- to long-term concentration of the industry will continue to rise, and I am optimistic about the room for improvement on both sides of the company's wealth and upward valuation.
Risk warning
1. Major adjustments to industry policies;
2. The equity market fluctuated greatly, and interest rates declined sharply.