① Interest spreads are a common issue faced by the industry. In 2024, it is necessary to improve investment performance, grow, broaden, and invest deeply. ② The share of Xinhua equity allocation is relatively low in the industry. However, I am strongly optimistic about A shares and H shares, and believe that they already have investment value.
Financial Services Association, March 28 (Reporter Wang Hong) At Xinhua Insurance's 2023 results conference today, Xinhua Insurance Chairman Yang Yucheng, President Zhang Hong, Vice President, Chief Actuator and Board Secretary Gong Xingfeng, Vice President and Chief Risk Officer Qin Hongbo, and Vice President Wang Lianwen responded one by one on hot topics such as risk of profit differences, declining agency team, and investment strategies.
In response to a 20% drop in the agency team, Wang Lianwen said that it is an industry trend and industry characteristic, and that the future will follow a connotative high-quality development path. Regarding the risk of interest spreads, Gong Xingfeng said that fluctuations in the investment market in 2023 taught the industry a vivid lesson, while Yang Yucheng said that interest spreads are a common issue faced by the industry. In 2024, it is necessary to improve investment performance, grow, broaden, and invest deeply.
In response to whether the equity allocation was increased last year, a number of Xinhua Insurance executives expressed a cautious attitude. Qin Hongbo said that Xinhua Insurance's equity allocation is more cautious than that of the industry. Yang Yucheng said that the share of Xinhua equity allocation is relatively low compared to the industry. However, I am strongly optimistic about A shares and H shares, and believe that they already have investment value. As the large fund jointly established with China Life Insurance progressed, the two executives also responded that they are mainly investing in the secondary market.
20% reduction in the number of responding agents: it is an industry trend
Financial reports show that in 2023, Xinhua Insurance achieved a total premium income of 165.903 billion yuan, an increase of 1.7% over the previous year. Cinda Non-Bank pointed out that the improvement in the structure of Xinhua Insurance's business structure in 2023 will drive a significant increase in the value of the new business. Based on the carefully lowered EV (embedded value) assumption, the value of the company's new business in 2023 was 3,024 billion yuan, and the value of the new business was 3,999 billion yuan based on the original assumption, an increase of 65.1% over the previous year.
Looking at each channel, Cinda Non-Bank pointed out that individual insurance channels achieved premium income of 115.576 billion yuan in 2023, which is basically the same as the previous year, and premiums for the first year of long-term insurance were +9.8% compared to the same period last year. By the end of 2023, the number of agents was 155,000, and the monthly per capita comprehensive production capacity was 6293.7 yuan, an increase of 94.4% over the previous year. The banking insurance channel achieved premium income of 47.824 billion yuan in 2023, an increase of 8.9% over the previous year.
In response to a 20% drop in the agency team, Wang Lianwen said that the Chinese life insurance market is still undergoing an adjustment period, and the industry team is in a downward trend channel. Judging from the characteristics of the industry, whether in the US or Japan, the five-year retention rate is 18% to 22%, and the one-year team retention rate is between 32% and 40%. Furthermore, the old sporty method of increasing staff is not working in the industry, and new methods are still being explored.
“However, there are still highlights in Xinhua Insurance's performance in 2023. The value of the new business increased by 65%, and the team's production capacity increased by 94%. We are following a phased strategy of increasing production capacity, improving structure, and steady growth,” Wang Lianwen also said that in the future, the team will move towards a contextual high-quality development path in terms of increasing production capacity, improving education, and managing innovative activities.
The risk of interest spreads and losses is a common issue faced by the industry
Referring to the risk of interest spreads currently faced by the insurance industry, Gong Xingfeng said that fluctuations in the investment market in 2023 taught the entire life insurance industry a vivid lesson on interest spread risk. The leverage effect of interest rates, especially on long-term debt, if it does not cover the cost of debt, the losses may be huge.
“In the current Chinese economic cycle, the decline in interest rates is very similar to Japan in the 90s. In the past, China's rapid economic development supported the development of the life insurance industry. The debt side was a rigid promise of customer premiums that would have to be repaid in the future; the investment side has assets with high yield in China's rapid economic development, urban investment, and real estate, and there are no interest losses. “The cost of debt may be as high as 6%, and the return on the asset side may be 9% or more,” Yang Yucheng also said that today's period of declining interest rates is a time when interest spreads and losses may occur.
Yang Yucheng also said that to improve investment performance in 2024, we will mainly work in three directions: grow, broaden, and grow deeper. In terms of growth, we insist on long-term value investment, allocate long-term assets in a steady and orderly manner, and products with ultra-long-term interest rates. Diversify investment types and strategies in a broad range of areas, and increase the layout of productivity in line with national strategies, new economic characteristics, and new quality. In terms of deepening investment and research, the only way to do in-depth research is in-depth research, in-depth exploration, and focus on holding good assets to achieve excess profits.
“The risk of interest spreads is not a matter for Xinhua Insurance alone; it is a common issue and problem that the entire industry faces and must face. Xinhua Insurance hopes to do better in this regard,” Yang Yucheng said.
Firmly optimistic about A shares and H shares
Financial reports show that in 2023, Xinhua Insurance achieved net profit attributable to shareholders of the parent company of 8.712 billion yuan, a year-on-year decrease of 11.3%. Xinhua Insurance said that due to the impact of the implementation of the new financial instrument standards, the data caliber is different and incomparable. Under the circumstances where simulation adjustments made the 2022 data basically comparable, Xinhua Insurance's net profit attributable to shareholders of the parent company fell 43% year-on-year in 2023.
Dongwu AfDB pointed out that the lower net profit of Xinhua Insurance than previously predicted was mainly due to investment drag. In 2023, the company's net return on investment and total return on investment were 3.4% and 1.8% respectively; in 2022 they were 4.6% and 4.3% respectively, mainly due to significant drag on profit and loss from trading price differences of investment assets and profit and loss from changes in fair value. In 2023, the Shanghai and Shenzhen 300 Index fell by about 11.4%.
Qin Hongbo said that compared to the industry's equity allocation, Xinhua Insurance's equity allocation did not fluctuate much. Referring to the 2024 investment strategy, he said he is optimistic about the Chinese economy, but the market environment is complicated. It will focus on broadening investment, such as laying out the primary market, high dividends, and preferred stock opportunities; in terms of industry transformation, the current Chinese economic structure changes, and the equity allocation will also be adjusted adaptively. Furthermore, it will be evaluated by a more professional and detailed investment and research team, and in the end, there will be reasonable rights and benefits choices.
Yang Yucheng, on the other hand, said that the equity allocation of Xinhua's assets has improved compared to his own, but equity assets account for a high or even low share of total assets in the industry.
“After a round of adjustments in China's capital market in 2023, we are firmly optimistic about A shares and H shares. We believe they already have investment value and will actively participate in the investment,” Yang Yucheng also said. In terms of specific allocation directions, high dividends, high technology, industry leaders, strong liquidity, and new economic characteristics, high technology, large consumption, resources and minerals, gold, etc. will also actively participate. In order to reduce volatility, it is also necessary to make some alternative investments in new infrastructure, including public infrastructure, gas, water and electricity, urban renovation, etc., which are highly safe and have guaranteed returns.
In response to the progress of the private equity fund jointly established with China Life Insurance, Qin Hongbo said that the fund is relatively independent and will focus on long-term allocation goals and work with China Life to improve the fund under the premise of compliance. Yang Yucheng, on the other hand, said that the private equity fund has a scale of 50 billion dollars, cooperating with China Life Insurance, and each invests 25 billion dollars. It mainly invests in the secondary market, focusing on long-term investment assets. Xinhua will actively participate in standardized investment in stocks and bonds. Non-standard alternatives, new infrastructure, new energy, and new quality productivity are all arranged.
Furthermore, there are market rumors that Vanke has reached an extension agreement with the insurance company, and the latter has also agreed to lower interest rates on non-standard debt. A CIFA reporter sought evidence from Gong Xingfeng about this. He said, “It's ongoing, and nothing can't be achieved.”