Description of the event

China Financial Insurance disclosed its 2024 quarterly report, achieving net profit of 5.87 billion yuan, a year-on-year decrease of 38.3%; achieving a comprehensive cost ratio of 97.9%, an increase of 2.2 pcts over the previous year.

Incident comments

Rain and snow disasters, recovery in travel rates, and return on investment dragged down performance. In the first quarter of 2024, the company achieved net profit of 5.87 billion yuan, a year-on-year decrease of 38.3%. Specifically, the decline in profit was mainly due to market shocks, which led to a decline in investment income, which estimated total investment income (interest income+investment income+fair value change gain+loss) fell by about 35.2% year on year; on the other hand, due to natural disasters such as blizzards and freezing rain, and the increase in travel rates, the comprehensive cost ratio increased 2.2 pct year on year to 97.7.7.

The slowdown in the growth rate of non-car premiums may be mainly affected by the pace of business. In the first quarter of 2024, the company achieved insurance service revenue of 113.84 billion yuan, an increase of 5.9%; of these, vehicle insurance service revenue was 72.29 billion yuan, an increase of 6.5% year on year; revenue from non-car insurance insurance services was 41.56 billion yuan, an increase of 4.9% year on year. The growth rate has declined compared to 2023, which is probably mainly due to delays in the selection of some policy businesses in 2024.

The return on investment performance was weak. Affected by market turbulence, the company achieved a total investment income of 4.78 billion yuan in 2024, a year-on-year decrease of 35.2%; the total return on investment was only 0.8% (unannualized), and the pressure on asset allocation increased. Of course, since there is no concept of debt cost in the financial insurance industry's business model, there is no risk of interest spread loss that the life insurance market is concerned about.

Solvency is leading, and future dividend capacity can be expected. As of the first quarter report, China's financial insurance core solvency ratio was 228.1%, which is 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. Natural disasters such as blizzard freezing rain put a slight pressure on underwriting performance. At the same time, 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 and upward valuation on both sides of the company's negative assets.

Risk warning

1. Major adjustments to industry policies;

2. The equity market fluctuated greatly, and interest rates declined sharply.