The recovery in asset returns led to a year-on-year improvement in profits. China Financial Insurance continues to promote the new business model of “insurance+risk reduction service+technology” to optimize the operating level of the entire insurance process. In the first three quarters of 2024, it achieved insurance service revenue of 364.31 billion yuan, an increase of 5.5% over the previous year, and the increase was further expanded over the middle of the year. The company has sufficient underwriting profit margin. In the first three quarters, it achieved an underwriting profit of 6.44 billion yuan, which corresponds to a COR of 98.2%. In terms of profit performance, the company achieved net profit of 26.75 billion yuan in the first half of the year, due to factors such as a recovery in the capital market in the third quarter and a steady recovery in upper interest rates, an increase of 38.0% over the previous year.

Auto insurance has maintained a steady growth rate, and underwriting profitability has maintained a healthy level. In the first three quarters, with the steady increase in car ownership, China Financial Auto Insurance achieved insurance service revenue of 219.51 billion yuan, an increase of 4.7% over the previous year. The company continues to strengthen technological empowerment and risk management levels to create a closed loop of “product supply-pre-insurance-pre-disaster-in-post-disaster” full-process service. The company's car insurance business achieved underwriting profit of 7.12 billion yuan in the first three quarters, corresponding to a COR of 96.8%. The frequency of 0.6pt disasters over the previous year dragged down the COR level of non-car insurance. The non-auto insurance business maintained a good growth rate, achieving insurance service revenue of 144.8 billion yuan in the first half of the year, an increase of 6.1% over the previous year. The non-auto insurance business was affected by increased compensation due to frequent major disasters. The underwriting loss for the first three quarters was 0.68 billion yuan, corresponding COR was 100.5%, up 1.9 points from the previous year.

The company continuously optimizes the application of risk reduction services to maintain steady growth in the non-car insurance business while achieving a good level of underwriting profit. As the frequency of natural disasters declines in the fourth quarter, non-car insurance is expected to achieve underwriting profits.

FVOCI's asset allocation efforts have been strengthened, and asset returns have picked up. In the first three quarters of 2024, China Financial Insurance continued to optimize its asset allocation structure and seize investment opportunities in the secondary market. FVOCI's equity asset allocation ratio increased sharply by 10.8% over the same period last year. At the same time, the company moderately increased the scale of equity investment in the secondary market in the third quarter. Profit and loss from changes in the fair value of its second-tier equity assets increased sharply year-on-year, and the increase was better than at the same time last year. Under the new guidelines, the recovery in asset-side investment returns has led to a significant improvement in the company's profits. In the first three quarters, the company achieved investment income of 27.5 billion yuan, an increase of 11.36 billion yuan over the previous year, corresponding to an annualized total return on investment of 4.4%, an increase of 1.7 pt over the previous year; achieved profit and loss of 7.35 billion yuan from changes in fair value, which was corrected year on year.

Investment advice: The financial insurance business model has the advantages of “two-wheel drive” on the asset side and debt side. Combined with opportunities such as the continuous recovery of current production and life and the rise of new energy vehicles, it is beneficial to the continued steady growth of the company's business. In addition, the recovery in the capital market and rising long-term interest rates are beneficial to asset side valuation repairs for insurers. We raised our profit forecast. The company's EPS is expected to be 1.33/1.49/1.60 yuan/share (originally 1.28/1.44/1.54 yuan/share) from 2024 to 2026. The current stock price corresponds to a PB of 1.04/0.96/0.90 times, maintaining the “superior to the market” rating.

Risk warning: Premium growth falls short of expectations; COR rises due to natural disasters; decline in asset returns, etc.