Core views
In recent years, Ping An Life Insurance has insisted on continuing to deepen channel transformation with high-quality development as the value. The company's high-quality channel system and “product+service” model are expected to help it optimize its product structure and achieve high-quality business growth. In the context of the banking insurance channel's policy of promoting “integration of reporting and banking”, Ping An Life Insurance's banking insurance channel value ratio is expected to be optimized to boost the value growth rate of the new business in 2024. On the asset side, with the gradual recovery of the macroeconomy, equity market performance is expected to pick up year on year, which in turn is expected to drive a year-on-year improvement in the company's return on investment.
occurrences
Ping An of China reveals 2023 results
The company's operating profit in 2023 was -19.7% YoY to $117.989 billion; NBV for life insurance and health insurance business +36.2% YoY to RMB39.262 billion; revenue from insurance services for financial insurance business was +6.2% YoY, and the comprehensive cost ratio was +1.1 pct to 100.7% yoy; total and net return on investment were +0.6 pct and -0.5 pct to 3.0% and 4.2%, respectively.
Brief review
1. Overall performance: The asset management business and technology business dragged down operating profits, but the profit resilience of the life insurance business was highlighted
Operating profit attributable to parent in 2023 was -19.7% year-on-year to $117.989 billion, mainly due to asset management business, technology business, life insurance and health insurance business operating profit of -1005.2%, -65.1%, and -3.2% year-on-year to -20.747 billion yuan, 1.905 billion yuan, and 105.70 billion yuan, respectively. Operating profit attributable to parent in the fourth quarter was -75.2% year-on-year to $5.507 billion, mainly due to a further increase of 398.6% year-on-year to 16.403 billion yuan in the asset management business, and -10.5% year-on-year operating profit from the life insurance and health insurance business to parent operating profit of -10.5% year-on-year to $20.59 billion. Net profit attributable to mother was -18.9% year-on-year in 2023 to $109.274 billion, and -95.0% year-on-year in the fourth quarter to $1,163 billion.
2. Life insurance and health insurance business: agent channels drive high NBV growth, and the year-on-year decline in CSM amortization has led to a decline in insurance service performance
In 2023, NBV was +36.2% (comparable caliber) to 39.262 billion yuan. The high increase in NBV was mainly driven by new premium growth. In 2023, the first-year premium used to calculate NBV was +38.9% year-on-year to $165.784 billion. NBVM -0.5pct (comparable caliber) to 23.7% year over year. In the fourth quarter of a single year, NBV was +13.9% year-on-year to 5.688 billion yuan, which is used to calculate NBV's first-year premium of +8.7% YoY to 21.02 billion yuan. In 2023, Ping An Life Insurance's 13-month policy continuation rate was 92.8%, up 2.5 percentage points year on year. The 25-month policy continuation rate was 85.8%, up 6.8 percentage points year on year, and business quality improved steadily.
In 2023, CSM for the new business was +10.9% YoY to 38.951 billion yuan. The current value of premiums for new businesses in 2023 was +21.9% year-on-year to 384.254 billion yuan, and the profit margin for new businesses was -1.0pct to 10.1% year-on-year. Insurance service performance in 2023 was -3.4% year-on-year to $88.587 billion, mainly due to CSM amortization -7.2% YoY to $74.787 billion, but operating deviations and others were +48.4% YoY to $7.771 billion. At the end of 2023, the CSM balance was $768.440 billion, -6.1% compared to the end of the previous year.
Based on comprehensive considerations of the macro environment and long-term interest rate trends, the company carefully lowered the life insurance and health insurance business's long-term return on investment assumption to 4.5% and the risk discount rate to 9.5%. The adjusted intrinsic value of the life insurance and health insurance business at the end of 2023 was $830,974 billion, which included value -10.7% under a comparable caliber (that is, based on assumptions and model calculations at the end of 2022); the adjusted 2023 NBV was $31.08 billion, a comparable caliber of -20.8%.
3. Agent channel: NBV per capita was greatly improved, and the team structure was continuously optimized to +40.3% (comparable caliber) of NBV in 2023 to 32.169 billion yuan. The increase in NBV was mainly driven by an increase in per capita production capacity. In 2023, NBV per agent channel was +89.5% year-on-year to 90,300 yuan. The increase in per capita production capacity is expected, on the one hand, due to large fluctuations in the capital market in 2023 and the steady investment style of residents, and strong demand for savings products represented by increased whole life insurance. On the other hand, it is also due to the company increasing the per capita production capacity of the agent channel by expanding the scale of excellent performance and strengthening the organization. In terms of expanding the scale of excellent performance, the company effectively enhances team production capacity by providing professional empowerment, covering skill improvement, practical training, honorary incentives, resource support, etc., so as to expand the high-performing population. In terms of strengthening the organization, the company upgraded the “three good five star” management system, guided departments to be guided by management results, scientifically manage sales department actions, enhance department management capabilities, and build a high-performing team.
In terms of manpower scale, the average number of agents per month in 2023 was -26.0% to 356,000. By the end of 2023, the number of agents was 347,000, compared to -22.0% at the end of the previous year. Against the backdrop of a decline in the overall manpower scale, the company focuses on increasing “excellence”, increasing the scale of improvement, and carrying out standardized operations to enhance the overall professional ability of the team and stimulate the desire to work for a long time. In 2023, the share of “Excellent +” in new manpower increased by 25.2 percentage points over the same period last year.
In 2023, the agent channel was used to calculate NBV's first-year premium of +59.3% to RMB 10.513 billion, and NBVM -4.3ct to 32.0% year over year. The agent channel for the second half of the year was used to calculate NBV's first-year premium of +51.7% YoY to 27.874 billion yuan, and NBVM -4.7pct YoY to 39.0%.
4. Banking insurance channel: Implement the value transformation strategy, focus on improving quality and efficiency, and achieve high-quality growth of NBV +77.7% year over year to 3,643 billion yuan in 2023, accounting for +2.2 pct to 9.3% year over year. The increase in NBV year-on-year was mainly due to increased premiums for new policies, followed by improvements in NBVM. The 2023 banking insurance channel was used to calculate NBV's first-year premium of +69.1% year-on-year to $18.091 billion. NBVM was +1.0pct to 20.1% year over year. The banking insurance channel for the second half of the year was used to calculate NBV's first-year premium of -10.7% to 3.749 billion yuan, and NBVM -2.5pct to 21.8% year over year.
In terms of the premium payment structure, the share of mid-term premium payments for the banking insurance channel in 2023 was 19.0pct to 61.6% year-on-year, and the share of mid-term premium payments for the banking insurance channel in the second half of the year was -22.7 pct to 56.0% year-on-year.
5. Financial insurance business: Underwriting losses were achieved due to the impact of the guarantee insurance business. After excluding the impact of the guarantee insurance business, the comprehensive cost ratio was 98.4%, and the 2023 underwriting achieved a loss of 2,083 billion yuan. The comprehensive cost ratio was +1.1 pct to 100.7% year-on-year. The increase in the comprehensive cost ratio was mainly due to the guarantee insurance business. Excluding the impact of guarantee insurance, the overall comprehensive cost ratio was 98.4%. Expenses and compensation rates were +0.9pct and +0.2pct to 29.2% and 71.5%, respectively.
Looking at insurance types, the comprehensive cost rates for car insurance/liability insurance/health insurance/accident insurance/corporate financial insurance/ guarantee insurance were 97.7%/106.2%/106.0%/97.7%/131.1%, respectively. The comprehensive cost rates for liability insurance/corporate financial insurance/guarantee insurance were +4.6pct/-1.5pct/+5.5pct, respectively. If the impact of natural disasters is excluded, the comprehensive cost ratio of car insurance business is 96.6%. The increase in the comprehensive cost rate of guarantee insurance is mainly affected by changes in the macroeconomic environment, and small and micro enterprise customers are still under high repayment pressure. In recent years, the company has continued to reduce the scope of guarantee insurance coverage and suspended the financial guarantee insurance business in the fourth quarter. As risk exposure to the guarantee insurance business gradually subsides, it is expected that its impact on the company's overall business quality will decrease in the future.
On the revenue side, insurance service revenue in 2023 was +6.5% YoY to 313.458 billion yuan, of which vehicle insurance/non-auto insurance/eHealth insurance business revenue was +6.1%/+12.9%/-9.3%, and vehicle insurance/liability/health insurance/accident insurance/corporate financial insurance/guarantee insurance original premium income was +6.2%/+6.6%/+36.7%/-27.4%/+14.8%/-97.0% to 213.851 billion yuan/23.221 billion yuan/13.250 billion yuan/ RMB 10.160 billion/ RMB 9.423 billion/ RMB 665 million.
6. Asset side: Balanced asset allocation strategy+improved equity asset performance led to a year-on-year improvement in net return on investment. In 2023, the company's insurance capital portfolio achieved a total return on investment of 3.0%, up 0.6 percentage points from the previous year; the return on comprehensive investment was 3.6%, up 0.9 percentage points from the previous year; and the return on net investment was 4.2%, down 0.5 percentage points from the previous year. The improvement in comprehensive return on investment was mainly due to a balanced asset allocation strategy, and equity asset performance improved compared to the previous year. The decline in return on net investment was mainly affected by the maturity of existing assets and the decline in return on new assets. As of December 31, 2023, the real estate investment balance in the company's insurance fund portfolio was 203.987 billion yuan, accounting for 4.3% of total investment assets, of which property investment, debt investment, and equity investment accounted for 78.4%, 17.3%, and 4.3% respectively.
7. Banking business: Business performance remains steady, and overall asset quality is stable.
In 2023, operating profit attributable to parent from banking business was +2.1% year-on-year to 26.925 billion yuan. In the fourth quarter of a single quarter, operating profit attributable to parent was -23.0% year-on-year to 3,953 billion yuan. In 2023, the net interest spread was -0.37pct YoY to 2.38%. In terms of retail business, as of the end of 23Q4, retail customer assets (AUM) were managed at 4031.137 billion yuan, up 12.4% from the beginning of the year; the number of retail customers was 125.432 million, including 1.377,500 wealth customers, +8.9% from the beginning of the year; personal deposit balance was 1207.618 billion yuan, +16.7% compared to the beginning of the year.
The overall quality of assets is stable. By the end of 23Q4, Ping An Bank's non-performing loan ratio was 1.06%, +0.01pct compared to the beginning of the year; the provision coverage rate was 277.63%, and the risk compensation capacity remained good.
9. Asset management business: Some assets are under pressure and the company's active preparation and revaluation led to losses in 2023. The asset management business's operating profit to parent was -1005.2% to -20.747 billion yuan. In the fourth quarter of a single quarter, operating loss attributable to parent was +398.6% year-on-year to 16.403 billion yuan. The main causes of pressure on performance: 1) Affected by the macroeconomic environment, rising credit risk and capital market fluctuations, putting pressure on some assets. 2) The company actively manages risks, proactively and prudently makes provisions, and revalues some projects.
10. Technology business: Profit declined year on year, and synergy benefits continued to be significant. In 2023, the operating profit of the technology business was -65.1% to 1.905 billion yuan. In the fourth quarter of a single quarter, operating loss to parent was +80.8% year-on-year to 358 million yuan. Looking specifically at the 2023 performance of each member company: 1) Lujin Holdings achieved net profit of 887 million yuan, a year-on-year decrease, mainly due to the impact of the macroeconomic environment. The scale of the loan business was under pressure, asset quality declined, and the combined risk bearing ratio increased, and the risk cost was high. 2) Financial One Account's operations continued to be optimized, and losses were reduced significantly. Net loss in 2023 fell 58.4% year-on-year to 363 million yuan. 3) Ping An Health achieved operating income of 4.674 billion yuan, and net loss decreased by 49.3% year-on-year to 323 million yuan. 4) Auto Home achieved operating income of 7.184 billion yuan and net profit of 2,160 billion yuan.
Investment advice: The high-quality channel system and “product+service” model are expected to help optimize the physical product structure and high-quality business growth in life insurance. In recent years, Ping An Life Insurance has insisted on using high-quality development as value to lead continuous deepening channel transformation and comprehensively build multi-channel specialized sales capabilities. Among them, agent channels provide professional empowerment, and banking insurance channels and Ping An Bank continue to deepen the exclusive agency model to help banks improve insurance sales capabilities. The company's high-quality channel system and “product+service” model are expected to help it optimize its product structure and achieve high-quality business growth. In the context of the banking insurance channel promoting the “integration of reporting and banking” policy, Ping An Life Insurance's banking insurance channel value ratio is expected to be optimized to boost the value growth rate of the new business in 2024.
In terms of financial insurance, with the rapid settlement of risk exposure in the guarantee insurance business, the extent of its impact on the overall business quality of Ping An Insurance is expected to decrease in the future.
On the asset side, with the gradual recovery of the macroeconomy, equity market performance is expected to pick up year on year, which in turn is expected to drive a year-on-year improvement in the company's return on investment.
The company's NBV growth rate for 2024/2025/2026 is expected to be 13.4%/13.6%/14.7%, respectively, giving the company a target price of 57.9 yuan for the next 6 months, corresponding to a PEV of 0.7 times in 2024, maintaining a “buy” rating.
Risk warning:
Debt-side reforms fall short of expectations: Currently, the company's life insurance business continues to deepen its transformation. If the quality of the company's agent team falls short of expectations, it may affect the company's new business value.
Long-term interest rates fall beyond expectations: If long-term interest rates decline more than expected, it will adversely affect the company's investment income.
A sharp decline in the equity market: If there is a sharp decline in the equity market, it will adversely affect the company's return on investment.
The recovery in residents' demand for insured products continues to fall far short of expectations: the new business value rate for insured products is generally high. If residents' demand for such products continues to be sluggish, it may have a negative impact on the company's new business value growth.