A leading domestic reinsurance company that has been deeply involved in the reinsurance market and has been deeply involved in the domestic reinsurance market for many years, and has accumulated rich experience and direct insurance customers. The development of China Reinsurance Group represents the process from inception to growth of the domestic reinsurance market. It has generally gone through three stages of development: the legal reinsurance period divided by the reinsurance marketization process before and after joining the WTO, and the period of complete commercial competition after the establishment of China Reinsurance Group.
Currently, China Renewal Group has ranked among the top ten reinsurance giants in the world. The reinsurance business is the core pillar of the company. Reinsurance premiums account for more than 70% of premium revenue and contribute more than 50% of profits. In the course of decades of business, it has established extensive and in-depth ties with domestic direct insurance companies and is actively exploring overseas markets through mergers and acquisitions.
The leading position in the industry is stable, and profitability needs to be improved
The leading position in the industry is stable, and the core of underestimation is that profitability needs to be improved urgently. Judging from the market share, the reinsurance business often has a high concentration because of its high requirements for capital and specialization capabilities. China Reinsurance Group is in a leading position in the domestic life insurance reinsurance market. Industrial insurance accounts for about 30%, and life insurance is as high as 50%, and its position is stable. Reinsurance companies apply to the PBROE model. The current underestimation is mainly due to low ROE, large capital replenishment but lack of rapid business expansion, so the leverage ratio is low; the characteristics of B-side business have led to limited ROA growth. Therefore, increasing ROE is an important direction for rising valuations. In addition to the cyclical nature of the investment business, the rapid expansion of the debt business has given the company opportunities for development.
The transformation of the direct insurance market has brought about an expansion in reinsurance demand, and the return to security of the direct insurance market during the gold development period is the general trend. Reinsurance is expected to usher in an increase in distribution insurance and an expansion of profit sources. Reinsurance itself is the role of service direct insurance. The traditional direct insurance market mainly focuses on product innovation and pricing, so reinsurance mainly serves insurance pricing. Looking ahead, the direct insurance market transforms into the guarantee business and gradually enters the “insurance+service” role expansion period. The expansion of insured business+industrial chain services will be the development theme. On the one hand, China Resources Group enjoys the explosion of distribution demand from the rapid growth of the insurance business, and on the other hand, it also has certain advantages in data, technology and customer resources to construct and export the role of “services”, expanding its own functions and profit sources, which is expected to drive continuous improvement in ROE.
Investment advice: High growth prospects and undervaluation give excellent allocation value and are expected to achieve rapid growth beyond the direct insurance market in the next 5 years. High growth will bring opportunities for valuation increases. According to estimates of premiums and distribution in the insurance industry, the overall premium growth rate of the direct insurance industry is expected to be around 10% in the next 5 years, but among them, the growth rate of health insurance and non-vehicle businesses will be higher than this level. Based on estimates of the market share of the domestic business of China Re Life Insurance and Industrial Insurance, under the three optimistic, neutral and pessimistic scenarios, China Re Life Insurance's domestic premiums will grow 25-35% over the next 5 years, and China Re Insurance's domestic premiums will grow 7-16% over the next 5 years, all higher than the direct insurance market level. Currently, the company's PB valuation is at the bottom since listing. The margin of safety is sufficient. The high growth of future development and the bargaining power of the reinsurance business will bring about continued profit growth and drive a steady rise in valuation. Active allocation is recommended.
Risk warning
1. The sharp decline in the capital market affected the company's investment income;
2. The concentrated outbreak of catastrophes has caused short-term compensation expenses to rise.
