China Insurance Sector:2015full-year premium growth;CPIC Life is the highlight

Aggregate gross life insurance premium for listed insurers rose by 12.2% YoY in 2015, the fastest growth since 2010

    Taiping Life and Ping An Life saw the highest annual gross premium growth; CPIC Life delivered a 66% YoY rise in agency regular FYP

    P&C insurance suffers from macro slowdown; our top picks are China Taiping and China Pacific Insurance (CPIC)

    What’s the impact: Aggregate life premiums of listed China insurers went up by 12.2% YoY for 2015. The December 2015 single-month gross premium was up by 3% YoY. We understand that listed large life insurance companies achieved their 2015 volume targets quite early, by 3Q15 at the latest. Hence, they were mostly focusing on the preparation of 2016’s New-Year Sales in late 2015. Some insurers that sold high-cash-value products in the second half of previous years did not repeat this in late 2015.

    Taiping Life and Ping An Life delivered the highest December 2015 and full-year gross premiums (23% and 20% YoY, respectively). Given that neither sold large amounts of high-cash-value products in 2015, we believe premium quality was not comprised despite the high top-line premium growth. For CPIC Life, although gross premiums only grew by 10% YoY, agency regular FYP jumped by 66% YoY for 2015, much higher than gross premium growth.

    We expect 18-20% YoY life premium growth for 2016 to be driven by:

    1) decent dividend settlement rate to be paid out in 2016 due to decent high investment yield for insurers in 2015; 2) low and declining yield on competing products such as WMP and bank deposits; and (3) the rising proportion of renewal premiums due to the rise in regular FYP since late-2014 (see pg. 15-19 in our thematic report A new dawn, 5 January 2016).

    Solid 2016 New Year Sales. In the first 4 days of 2016, agency FYP rose by over 130%, 60%, and 30% at CPIC, China Life, and Ping An, respectively, according to local media. We believe the spike in agency FYP suggests robust trends in premium and VNB growth for these insurers for 2016 (see Soaring 2016 New Year Sales, 7 January 2016).

    Aggregate P&C premiums for listed insurers grew by 10.6% in 2015, the lowest rate since 2006. December 2015 single-month premium went up by 14% YoY due to the recent pick-up in new auto sales. However, we do not think new auto sales in China are structurally trending upwards. Besides, most of the non-auto lines are suffering from a macro slowdown, especially in the commercial property space and international trade segment. Hence, we forecast only single-digit P&C premium growth for 2016-17.

    What we recommend: We do not think the market is pricing in any VNB or EV growth and is too concerned on the stock market exposure and declining yield on bonds for China insurers. Our top picks are Taiping (966 HK, HKD18.06, Buy [1]) and CPIC (2601 HK, HKD25.85, Buy [1]). Key risks to our Positive sector call: fiercer competition and A-share volatility.

    How we differ: Unlike the market, we are not overly concerned on China insurers’ recurring investment yield.