Matters:
Sunshine Insurance released its 2023 annual report. In 2023, the company achieved net profit of 3.74 billion yuan, -16.8% year-on-year; Sunshine Life achieved a new business value of 3.6 billion yuan, +44.2% year-on-year after restatement. As of the end of 2023, the included value was $104.06 billion, +6.4% year-on-year after restatement. In 2023, net/total/comprehensive return on investment was 4.0%/3.3%/4.8%, +0.1pct/-1.6pct/+2.0pct, year-on-year, respectively.
Commentary:
NBV achieved high growth or benefited from price drivers, and bank insurance transactions dragged down the downside of new orders. In 2023, Sunshine Life achieved premium income of 74.60 billion yuan, +9.2% year on year; new premiums -4.6% year on year, renewal premiums +23.7% year over year; achieved new business value of 3.6 billion yuan, +44.2% year over year after restatement. NBV is expected to be mainly driven by the increase in the value ratio of the new business. In the new order structure, term payment ratio was +22.7%, long-term insurance contract ratio was -28.3%. The futures ratio increased, and the structure was optimized. The decline in new orders mainly comes from banking insurance channels. In 2023, premiums for new bank insurance channels were -10.4% year over year, and the company took the initiative to reduce bank insurance channel transactions, -29.0% compared to the same period last year. The banking insurance channel still maintained good growth momentum. The average net production capacity was 87,000 yuan, +32.6% year over year; per capita production capacity was 165,000 yuan, +37.3% year over year.
Individual insurance channels contributed mainly to growth, and the results of the reforms were realized. In 2023, premiums for new insurance channels were +37.2% year-on-year, of which new instalment payments were +46.5% year-on-year. The size of the agency team is still on a downward trend, but the decline has narrowed. The average monthly manpower size in 2023 was -15.5% year-on-year to 53,400 people. Benefiting from the continuous advancement of agent reforms, the quality of the team improved markedly. The per capita production capacity reached 21,000 yuan, +44.4% year over year; among them, the production capacity of each newcomer was about 15,000 yuan, +50.2% over the same period last year, and the increase in quality personnel contributed to the increase in performance. The team structure continues to be optimized. By the end of 2023, the number of MDRT members reached 519, +84.7%; the elite team had 1,735 people, +21.6% compared with the same period, with a college degree or above accounting for 84.8%, with a production capacity of 49,000 yuan per capita.
In terms of the insurance structure, life insurance absolutely dominates. Life insurance premium income in 2023 was 63.33 billion, +11.9% year-on-year, accounting for +2.0pct to 84.9%. Among them, traditional insurance accounted for 65.5%, +12.4pct year on year; dividend insurance accounted for 19.1%, -10.4pct year on year; and universal insurance accounted for 0.3%. In 2023, the company's health insurance premium revenue was 10.70 billion yuan, -2.7% year-on-year, accounting for 14.3%, or -1.8pct year-on-year. Policy quality continued to improve, and the policy continuation rate for the 13/25 months of 2023 reached 93.9%/86.6%, +3.4pct/+8.1pct compared to the same period.
Industrial insurance is growing steadily, and the importance of non-car insurance is increasing. In 2023, Sunshine Insurance achieved premium income of 44.24 billion yuan, +9.6% over the same period last year. In terms of insurance structure, car insurance was +6.1% year over year, and non-car insurance total was +14.9% year over year.
The importance of non-car insurance increased markedly, accounting for +1.9pct to 40.9%. Freight insurance contributed to the main growth rate, achieving +220.0% year-on-year, accounting for +3.5pct to 5.3%; liability insurance also had an impressive growth rate of +42.9% year-on-year, accounting for +1.7pct to 7.3%. The company continued to promote risk clearance of guarantee insurance, partially offsetting the growth of other non-car insurance, which was -25.8% year-on-year in 2023, accounting for -4.6pct to 9.8%.
Non-car insurance drives overall COR optimization, and the effect of ensuring that insurance risk is cleared is remarkable. In 2023, the company's property insurance business COR -0.7pct year-on-year to 98.7%. The overall cost ratio optimization was mainly due to the reduction in the cost rate, which was -2.0pct to 33.7% year over year; the payout rate was +1.3pct to 65.0% year over year. In terms of insurance types, the COR for car insurance reached 98.9%, +1.5pct year on year, mainly affected by the increase in travel after the end of the epidemic and the increase in the frequency and severity of natural disasters; the overall COR for non-car insurance reached 98.6%, -5.5 pct year on year. Among them, eHealth Insurance and Guarantee Insurance maintained good profitability. The COR was 92.3%/98.8%, respectively, and the guarantee insurance risk clearance effect was remarkable.
Liability/freight insurance covered losses, and COR reached 102.1%/103.6%.
Net return on investment declined, and total/comprehensive return on investment increased. As of the end of 2023, the Group's total investment assets reached 479.75 billion, +15.5% year-on-year. The continued decline in interest rates is expected to lead to an increase in fixed income income. The company's net return on investment in 2023 was 4.0%, +0.1 pct year on year; however, due to fluctuations in the equity market, the total return on investment was 3.3%, -1.6 pct/ year on year, respectively; the comprehensive return on investment was 4.8%, +2.0pct year over year. In terms of allocation structure, fixed income was +2.1 pct to 69.2% year over year, with bonds +7.8 pct to 52.0% year over year, non-standard -2.3 pct to 15.2% year over year; equity category -1.2 pct to 21.1% year over year, of which stocks and funds -2.8 pct to 12.0% year over year. Judging from the accounting measurement method, FVTPL/FVOCI accounts for 26.1%/61.0% of investment assets, respectively, and OCI accounts for a relatively high proportion, which partly explains the reason for the high return on comprehensive investment.
Assuming a downgrade, operate prudently. The company's risk discount rate was reduced from 11% to 9.5%, and the return on investment assumption was lowered from 5.0% to 4.5%. Under the new assumption, the Group achieved an intrinsic value of 104.06 billion yuan in 2023, +6.4% year-on-year after restatement. The original value of the Group in 2022 was $101.27 billion, and the difference was $97.84 billion after the restatement, the difference between the two was -3.4%; the original value of the new business was $3.02 billion, and the difference was 2.49 billion after the restatement, the difference was -17.4%. The continued decline in long-term interest rates brings pressure on capital management. Lowering assumptions will help ease pressure on the investment side, and at the same time re-evaluate product pricing strategies to promote prudent management and steady development of the company.
Investment advice: In 2023, the value of Sunshine Life's new business achieved impressive growth, and the quantity and quality of Sunshine Insurance increased sharply.
Under the influence of capital market resonance, the decline in total investment income affected the net profit growth rate, but comprehensive investment income achieved a marked increase. Looking ahead, banking insurance channels may be affected by regulatory changes in the short term, but agent reforms are expected to drive new business value growth. Considering the transition between the old and new standards, we lowered the 2024-2026 EPS forecast to $0.4/0.51/0.61 (the original 2024-2025E was $0.63/0.74), maintaining the 2024 personal insurance business 0.35xPb, property insurance business 0.6xPb, and other business 0.5xPb, corresponding to the 2024 target price of HK$4.50 per share (HKD to RMB 0.92). Maintain a “Recommended” rating.
Risk warning: regulatory changes, reforms falling short of expectations, equity market fluctuations, continuing decline in interest rates