Affected by the epidemic situation and car insurance reform
The share price of China re has been weak since the beginning of the year. In 2020, the company's direct property insurance business and property insurance reinsurance business were hit hard by car insurance reform and the epidemic, and the combined cost rate of these two businesses deteriorated.
We believe that the auto insurance reform in 2021 will continue to put pressure on the auto insurance sector, but the impact of the epidemic will be mitigated. In terms of life insurance reinsurance business, we are optimistic about its unique data advantages and experience in protective insurance. Although the scale of the indemnificatory business is still small, the company believes that this line of business has strong growth potential and strategic significance. We estimate that the 2021 / 2022 / 2023 EPS for 2023 is RMB 0.17 / 0.19 / 0max / 023. The company's current share price corresponds to 0.32 times PTNAV. Maintain a "buy" rating.
Direct property insurance and property insurance reinsurance business: continue to bear pressure
The underwriting performance of China Reinsurance's overall property insurance reinsurance business deteriorated in 2020, mainly affected by overseas business during the epidemic. We believe that as the impact of the epidemic gradually recedes, the comprehensive cost rate of the overall property insurance reinsurance business will improve in 2021. It is expected that the comprehensive cost rate of the property insurance reinsurance business will be 98.6%, and the premium growth rate will be 9%. However, we believe that the auto insurance reform launched in September last year will continue to put pressure on the entire auto insurance sector. We estimate that the comprehensive cost rate of the company's property insurance direct insurance business is 102.9%, and the premium growth rate is-1.4%.
Life insurance reinsurance business: the insurance business with good profits continues to grow. The security business grew strongly in 2017-2020, with CAGR reaching 42.7%. Over the same period, the comprehensive cost rate improved from 98.58% to 97.06%. At the company's 2020 performance meeting, the management pointed out that the underwriting performance of innovative protection business, such as industrial integration business, is better than that of the overall guarantee business. We believe that the market underestimates the unique advantages of China Reinsurance in terms of data, experience and guaranteed business innovation. The contribution of financial reinsurance premiums declined in 2020, but management said that potential second-generation rule changes are expected to bring more financial reinsurance demand from small and medium-sized insurance companies.
Valuation is attractive
We update our forecast to lower the 2021 / 2022 / 2023 EPS to RMB 0.17 / 0.19 / 20 / 23 (previous value: 0.18 / 0.22 / 0.24) to reflect the increased underwriting pressure on property insurance. We use the SOTP method to value China's reinsurance based on accounting indicators and embedded value indicators. We give China Reinsurance a "buy" rating, with a target price of HK $1.1 corresponding to 0.42 times the 2021 forecast PTNAV. The company's current share price corresponds to 0.32 times the 2021 forecast PTNAV, compared with the leading peer PICC Property and Casualty 0.64 times the 2021 forecast PTNAV, we think the valuation is not high.
Risk hint: catastrophe leads to significant underwriting losses in property insurance reinsurance business; weak growth in health insurance reinsurance premiums; large underwriting losses in direct property insurance business; and significant investment losses in the company.
