The value of new business is expected to increase by more than 10% year over year in 2024. In 2023, the company lowered the long-term return on investment from 5% to 4.5%, and the risk discount rate from 11% to 9%. The impact of the above hypothetical adjustments on the value of the new business was 20%, and the value of the new business remained flat year on year after the 2023 adjustment (the comparable caliber before the adjustment increased 26% year over year). After implementing the integration of reporting banks in the banking insurance channel, the value of the company's new banking insurance business grew strongly and its contribution increased. We expect the value of the company's new business to increase 13% year over year in 2024 as the overall new business value rate increases year over year. The increase in the value rate of the new business is expected to be mainly due to three factors: 1) the year-on-year reduction in scheduled interest rates; 2) the integration of banking insurance channels to reduce the fee rate; and 3) product structure optimization.
Investment returns are expected to pick up year over year in 2024. Looking at the company's insurance fund asset allocation, at the end of 2023 compared to the end of 2022, the share of bonds increased by 6.5 percentage points and the share of stocks decreased by 3.5 percentage points. It is expected that the volatility of the company's investment portfolio will decrease in 2024. We expect that the continued introduction of support policies for the real estate industry since April will help improve economic growth expectations, promote a recovery in the stock market, and push bond yields back from a low level. We expect the return on insurance investment to rise year on year in 2024, and drive a recovery in profits.
Taiping Life's solvency ratio is at a high level among peers. As of the first quarter of 2024, Taiping Life's core solvency ratio was 142.79%, which is at a high level among peers. Taiping Life's solvency level has increased significantly since 4Q23, mainly due to an increase in net assets, the issuance of 11 billion perpetual bonds to supplement core secondary capital, and a corresponding reduction in excess deductions as core capital increases.
Maintain a buy rating. We expect an upward trend on both the asset side and the debt side of the company in 2024. We have adjusted our financial forecasts in line with the new accounting standards, and we expect profit to increase 17% year over year in 2024.
Based on 0.38 times the 2024 net market ratio, we raised our target price from HK$9.6 to HK$10.6 to maintain our buy rating.