Key points of investment
Incident: China Financial Insurance disclosed 3Q24 results (disclosed in accordance with the new A-share guidelines). 9M24 achieved insurance service revenue of 364.306 billion yuan, up 5.3% year on year (of which 3Q24 growth rate was 5.6%); cumulative net profit was 26.75 billion yuan, up 38.0% year on year, close to the previous high of the company's 20% to 40% range. Corresponding to 3Q24 net profit increased sharply from 0.153 billion yuan in the same period last year to 9.293 billion yuan, mainly due to The recovery in the stock market at the end of September led to a sharp change in fair value profit and loss from 9M23 cumulative -4.571 billion yuan to 9M24 cumulative 7.353 billion yuan. The performance was in line with expectations.
9M24's cumulative ROE reached 11.1%, mainly due to a sharp increase in investment income, and total underwriting profit decreased by 12.7% year-on-year (corresponding to the increase in underwriting loss in a single quarter of 3Q24 from -0.726 billion yuan to -1.177 billion yuan in the same period last year). According to our new standard financial insurance ROE framework (average underwriting leverage* underwriting profit+total return on investment* average investment leverage+other income) * (1- actual tax rate), 9M24's ROE was 11.1%, an increase of 2.3 pcts over the previous year. In terms of attribution, the average underwriting leverage fell slightly to 1.51; underwriting profit margin fell slightly from 2.1% of 9M23 to 1.8% of 9M24; 9M24's total return on investment improved sharply from 2.7% of 9M23 to 4.4%, driving a significant year-on-year improvement in 9M24's total investment income, which is the core reason for the improvement in net profit for the current period. The 3Q24 Shanghai and Shenzhen 300 Index rose 16.07% (cumulative increase of 17.1% in the first three quarters of 2024), while 3Q23 fell 3.98% during the same period (cumulative decline of 4.7% in the first three quarters of 2023). The company indicated an appropriate increase in secondary equity investment in 3Q24. 9M24 underwriting and investment contributed 20.2% and 84.4% to profits. The company said it will focus on promoting high-quality development, solidly advancing the “eight strategic services”, and implementing the new “insurance+risk reduction service+technology” business model.
Auto insurance underwriting profit remained stable year over year. 9M24's cumulative vehicle insurance comprehensive cost ratio (COR) was 96.8%, corresponding to 3Q24, which was 97.6%. The year-on-year decline was due to a good level of cost control. 9M24 Human Insurance's cumulative year-on-year growth rates for car insurance and non-car premiums were 3.2% and 5.9%, respectively. The premium growth rate picked up in September, and the average premium rate improved year-on-year. Thanks to: 1) Starting in June 2023, the range of independent pricing factors for commercial vehicle insurance was expanded from [0.65-1.35] to [0.5-1.5], and data comparability gradually increased after June 2024; 2) As the penetration rate of new energy vehicles continued to increase, the average premium advantage of NEV insurance was gradually reflected. The 2024 edition of the new “Ten Rules of the State” clearly proposes “focusing on NEV commercial vehicle insurance and deepening comprehensive vehicle insurance reform”, focusing on the continuation of subsequent improvements in average vehicle premiums and whether NEV insurance payout rates can quickly reach the average level of traditional fuel vehicles. We are optimistic that the company's car insurance business COR will be stable within 97%.
The non-vehicle business was affected by disasters such as low temperatures, rain, snow and freezing, torrential rain, and strong typhoons, and lost money. 9M24's cumulative non-car insurance COR was 100.5%, corresponding to 3Q24, compared to 98.6% and 103.2% respectively in the same period last year. Both deteriorated to a certain extent over the previous year, mainly due to the increase in payout rates. According to data from the Ministry of Emergency Management, in the first three quarters of 2024, natural disasters in China were mainly floods, geological disasters, wind and hail, typhoons, freezing temperatures, and snow disasters. Droughts, earthquakes, sandstorms, forest and grassland fires also occurred to varying degrees.
9M24 has accumulated direct economic losses of 323.2 billion yuan due to various natural disasters, an increase of 4.8% over the previous year. At the company level, major compensation items for the 3Q24 single quarter included typhoon “Morocco” and typhoon “Pebble”, which together actually paid more than 2.6 billion yuan.
Profit forecasting and investment ratings: Investment profits drive profit growth close to the pre-increase edge. Maintaining the profit forecast, we expect net profit to be 296, 323, and 34.5 billion yuan in 2024-26, maintaining a “buy” rating as the target of a cost-effective dividend that can be attacked and defended.
Risk warning: High incidence of natural disasters, increased competition in the car insurance market
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