Intelligence Finance APP learned that Huaxi Securities released a research report stating that looking ahead to the third-quarter report of 2024, listed insurance companies are expected to exceed expectations in terms of net income and new business value growth. On the liability side, the downward trend of the scheduled interest rate combined with high-quality transformation of products and channels are expected to lead to a continued increase in NBV growth of each insurance company in the first three quarters of 2024 compared to the mid-year report. On the asset side, a package of stable economic policies is expected to be gradually introduced, investors' confidence in the equity market is expected to continue to gradually recover, investment income is expected to significantly improve from the low base in the same period last year, and the constraints on the profits and stock price valuations of the life insurance sector are expected to be fully lifted. Maintaining an industry 'recommended' rating.

Main views of Huaxi Securities:

Life insurance: It is expected that the new business value will accelerate in 2024Q3.

Listed insurance companies are driving the unexpected growth of new business value in the first half of 2024 by focusing on price to supplement volume. In the first half of 2024, the NBV of each listed insurance company has continued to grow at double-digit rates, with year-on-year growth rates in the following order: the people's insurance (+91.0%) > new China life insurance (+57.7%) > china pacific insurance (+22.8%) > china life insurance (+18.6%) > Ping An Insurance (+11.0%).

In terms of volume and price separation, although new single premiums have declined, with China Life Insurance's new single premiums down by -6.4% year-on-year, China Pacific Insurance's first-year annualized premiums down by -11.9% year-on-year, the People's Insurance long-term insurance first-year premiums down by -20.4% year-on-year, and New China Life Insurance's long-term insurance first-year premiums down by -45.1% year-on-year. However, the new business value rates of each insurance company have seen significant improvements, with New China Life Insurance up by +13.7 percentage points year-on-year, the People's Insurance up by +6.9 percentage points year-on-year, Ping An Insurance up by +6.5 percentage points year-on-year, China Pacific Insurance up by +5.3 percentage points year-on-year, and China Life Insurance up by +4.2 percentage points year-on-year. This is mainly due to the combined impact of factors such as the downward adjustment of scheduled interest rates, channel and institution integration, and comprehensive optimization of product structure.

It is expected that the new business value of each insurance company in the third quarter of 2024 will continue to accelerate. In terms of new single premiums, the demand for new policies in August was stimulated by the cessation of sales and has been released to some extent. According to data disclosed by the China Banking and Insurance Regulatory Commission, the industry's total premium income from January to August 2024 was 3.21 trillion yuan, an increase of +16.1% year-on-year, with a growth rate 3.0 percentage points higher than that of January to July, mainly due to the concentrated sales of new policies driven by this round of scheduled interest rate reductions, as well as the impact of the low premium base in the same period last year. In terms of value rates, with the continued optimization of product structure and the deepening of high-quality transformation of channels, the business quality of each insurance company will continue to improve.

Therefore, Huaxi Securities expects that the NBV of the top three insurance companies in the first three quarters will be the People's Insurance +80.0% > New China Life Insurance +59.1% > China Pacific Insurance +37.7% > China Life Insurance +29.6% > Ping An Insurance +25.7%, with the growth rate continuing to increase compared to the interim report. There is still hope for a high prosperity in 2024, and the continuity of high growth in NBV is bullish and has a positive catalytic effect on valuation.

Property insurance: Premiums are growing steadily, benefiting from the reduction of risk amount and the potential easing of COR pressure.

Property insurance premiums grew steadily overall. According to data disclosed by the China Banking and Insurance Regulatory Commission, the industry's total premium income in January-August 2024 was 1.17 trillion yuan, up by +5.5% year-on-year, with a continued improvement in growth rate from June to July. Among them, the year-on-year premium growth rates of the top three property insurance companies were China Pacific Insurance (+7.7%) > Ping An Insurance (+5.3%) > The People's Insurance (+4.3%). Looking at the distribution of insurance types (2024 H1 data), Ping An Insurance has the largest share of auto insurance premiums at 65.4%, with non-auto insurance accounting for 34.6%; The People's Insurance has the largest share of non-auto insurance at 55.3%, with auto insurance at 44.7%; China Pacific Insurance's non-auto insurance share exceeds auto insurance, at 53.8%.

Benefiting from the risk reduction services of various insurance companies, COR pressure may be relieved. In 2024Q3, affected by catastrophic events such as heavy rain, floods, typhoons, and geological disasters, the claims ratio of various insurers may be under pressure. At the same time, various insurers actively carry out risk reduction services and have achieved results. Judging from the performance of the Core Operating Ratio (COR) in the first half of 2024, under the backdrop of a sharp increase in natural disaster losses year-on-year (according to the website of the Emergency Management Department, the direct economic losses from natural disasters in the first half of 2024 increased by 71.64 billion yuan to 93.16 billion yuan), various insurers have performed well, with the COR of the People's Insurance/China Pacific Insurance/Ping An Insurance being 96.2%/97.1%/97.8% respectively, with year-on-year changes of +0.4pt/-0.8pt/-0.2pt respectively.

Therefore, the upward pressure on the Core Operating Ratio (COR) of various insurers in the first three quarters of 2024 is expected to be relieved with the release of the efficiency of risk reduction services. It is expected that the COR of the top three insurers will be the People's Insurance 96.2% < China Pacific Insurance 97.0% < Ping An Insurance 97.6%.

On the investment side: With the recovery of the equity market, there is hope for a significant improvement in profits.

The recovery of the equity market in the third quarter of 2024 is expected to drive a significant improvement in investment income, which will in turn improve the net income of various insurance companies. The CSI 300 Index rose by 16.1% in the third quarter of 2024 (accumulating a 17.1% increase in the first three quarters of 2024), while it fell by 4.0% in the third quarter of 2023 (accumulating a 4.7% decrease in the first three quarters of 2023). With the stock market recovering, the investment income of various insurance companies is expected to significantly increase year-on-year. At the same time, due to the low performance base of various insurance companies in the same period of 2023, the net income of various insurance companies is expected to see a substantial increase driven by the combination of a low base and the recovery of the investment side.

Pure life insurance companies have outstanding equity elasticity and are expected to benefit first from the current stock market recovery. With the current stock market recovery and the gradual restoration of investor confidence, life insurance companies' performance is expected to benefit first. According to Huaxi Securities calculations, the ratio of trading financial assets/owner's equity in investment assets of listed insurers at the end of 2024H1 is, in descending order, New China Life Insurance (528%) > China Life Insurance (369%) > China Pacific Insurance (221%) > Ping An Insurance (102%) > the People's Insurance (96%); the ratio of stock investments/owner's equity in investment assets of listed insurers at the end of 2024H1 is, in descending order, New China Life Insurance (160%) > China Life Insurance (88%) > China Pacific Insurance (75%) > Ping An Insurance (26%) > the People's Insurance (13%).

Regarding symbols: bullish on pure life insurance symbols with large asset-side equity elasticity New China Life Insurance (601336.SH) and China Life Insurance (601628.SH); recommending the continuous optimization of business for The People's Insurance (601319.SH); optimistic about China Pacific Insurance (601601.SH) and Ping An Insurance (601318.SH) with solid liability-side stability.

Risk warning: lower-than-expected product sales; slower-than-expected channel transformation; regulatory tightening risks; significant volatility in the equity market; interest rate drop beyond expectations; macroeconomic growth below expectations.