Institution: Changjiang Securities
Rating: buy
Domestic reinsurance leader, ploughing the reinsurance market for many years
Deeply ploughing the domestic reinsurance market for many years, accumulating rich experience and direct insurance customers. The development of China re Group represents the process of the domestic reinsurance market from prosperity to growth, and has roughly experienced three stages of development: the legal reinsurance period and the market transition period separated by the marketization process of reinsurance before and after China's entry into WTO, and the period of complete commercial competition after the establishment of China re Group. At present, China re Group has become one of the top 10 reinsurance giants in the world. Reinsurance business is the core pillar of the company. Reinsurance premiums account for more than 70% of premium income and contribute more than 50% of profits. In the course of decades of operation, it has established extensive and in-depth ties with domestic direct insurance companies, and actively opened up overseas markets through mergers and acquisitions.
The leading position of the industry is solid, and the profitability needs to be improved.
The leading position of the industry is solid, and the core of undervaluation is that profitability needs to be improved. From the perspective of market share, reinsurance business often has a high degree of concentration because of its high requirements for capital and professional ability. China re Group occupies a leading position in the domestic property life insurance reinsurance market, accounting for about 30% of property insurance and more than 50% of life insurance. the position is solid. The reinsurance company is suitable for the PBROE model. The current undervaluation is mainly due to the low ROE, a large amount of capital replenishment but the lack of rapid business expansion, which makes the leverage ratio low; the B-end business attributes lead to the limited improvement of ROA. Therefore, the improvement of ROE is an important direction of valuation rise. In addition to the cyclical nature of investment business, the rapid expansion of debt business gives the company development opportunities.
The transformation of the direct insurance market has led to the expansion of reinsurance demand, which will usher in a golden period of development.
It is a general trend for the direct insurance market to return to security, and reinsurance is expected to usher in reinsurance growth and profit source expansion. Reinsurance itself is the role of service direct insurance, and the traditional direct insurance market mainly focuses on product innovation and pricing, so reinsurance mainly serves insurance pricing. Looking to the future, the direct insurance market will transform its security business and gradually enter the role expansion period of "insurance + service". Security business + industrial chain service expansion will be the development theme. On the one hand, China re Group enjoys the outbreak of reinsurance demand under the rapid growth of security business, on the other hand, it also has certain data, technology and customer resource advantages to build and export the role of "service", expand its own functions and profit sources. It is expected to promote the continuous improvement of ROE.
Investment advice: high growth prospects and low valuation give excellent allocation value
It is expected to achieve rapid growth beyond the direct insurance market in the next five years, and high growth will bring opportunities for higher valuations. According to the calculation of the premium and reinsurance situation of the insurance industry, the overall premium growth rate of the direct insurance industry is expected to be around 10% in the next five years, but the growth rate of health insurance and non-car business will be higher than this level. Based on the estimation of the market share of the domestic business of China re-life insurance and property insurance, under the optimistic, neutral and pessimistic scenarios, the domestic premium of China re-life insurance will grow by 25-35% in the next five years, and the domestic premium of China re-property insurance will grow by 7-16% in the next five years, which is higher than the level of the direct insurance market. The current PB valuation of the company is at the bottom since listing, and the margin of safety is sufficient. The high growth of future development and the bargaining power of reinsurance business will lead to sustained growth of profits, leading to a steady rise in valuation. Active allocation is recommended.
Risk Tips:
1. The sharp fall in the capital market affects the company's investment income; 2. The concentrated outbreak of catastrophe led to an upward trend in short-term reparations.