Insurance & Reinsurance 02 (Oct 14 - Dec 25)

[winston]

Insurance – Hong Kong
Value Buy Or Value Trap?

We believe the recent regulatory action has limited impact on AIA and Prudential due to the small quantum of new business contribution from the involved brokers.

We continue to expect regional insurers to deliver at least 20% yoy new business growth in 1Q24.

However, high interest rates and market uncertainty could continue to weigh on their valuations in the near term.

Any upside surprise in 1Q24 new business or favourable updates in shareholder returns could turn sentiment around. Maintain MARKET WEIGHT.

Source: UOBKH

https://research.uobkayhian.com/content ... 9c5edd2ef8

[winston]

Some Chinese insurers face ‘material’ profit risk from property exposure: Moody’s

Some insurers have exposure in excess of 15 per cent of shareholders’ equity, report says

by Yuke Xie

Alternative investments pose the greatest potential challenge for insurers, the report said. These investments include debt-investment schemes, asset-management products and trust plans that use commercial properties as underlying assets.

The nationwide office vacancy rate rose by 0.3 percentage points quarter on quarter in the first quarter of 2024 to 24.8 per cent.

Source: SCMP

https://www.scmp.com/business/article/3 ... pe=section

[winston]

<Research>CLSA Prefers PING AN for CN Insurers, Remains Cautious on CPIC, CHINA LIFE and NCI

According to a report issued by CLSA, Chinese regulator has lowered the cap on the pricing interest rate (PIR) for life insurance products by 50 bps.

The broker expected a moderate increase in recent sales due to the impact of last-call sales, which it believed to be long-term positive as the impact could reduce the risk of negative spread.

In the light of limited positive factors, coupled with investors' increased concern about investment pressure, stock prices have performed more modestly.

CLSA maintained AIA (01299.HK) and PICC P&C (02328.HK) as its top picks.

Among Chinese insurers, the broker preferred PING AN (02318.HK), while being cautious about CPIC (02601.HK), CHINA LIFE (02628.HK) and NCI (01336.HK) .

Related News: HSBC Global Research Slightly Cuts AIA TP to $89; PRU TP $119

Source: AAStocks Financial News

http://www.aastocks.com/en/stocks/news/ ... -news/AAFN

[winston]

China: <Research>CICC: CN Notice for Life Insurance Product Pricing Mechanism Does Not Imply No More Negative Spread Risks For Insurers

CICC covered in a report that on 2 August, the National Financial Regulatory Administration (NFRA) issued the "Notice on Improving the Pricing Mechanism of Life Insurance Products" (literal translation of "關於健全人身保險產品定價機制的通知").

CICC commented that the Notice's purpose has been hinted at many times in the past - in the interest rate downturn environment, the regulators are very likely to launch a variety of measures to improve the cost of liabilities of insurance companies and to ensure reasonable profits.

Important means to achieve these goals include lowering the return rate of insurance products following the changes in market interest rates, and regulating the cost of expenditure, among other measures.

Previously, charging less to customers and paying more to channels have been the main ways for small and medium-sized companies with poorer operational capability to obtain more business.

In the process of lowering the actual cost of debt in the industry, it is likely that the various measures will help companies with stronger operational capabilities to improve their competitive landscape and increase their market share.

The broker believed the reduction in the insurance products' return rates would not lead to difficulties in selling products. Under the downward trend of interest rates, the unique "long-term capital preservation" attribute of insurance products will give them a competitive edge over deposits and bank wealth management in people's asset allocation.

Meanwhile, due to the longer term of insurance products, the return rate will in most cases be higher than the yield provided by bank deposits and other short-term products.

Under the circumstance that residents do not change their expectation for the interest rate to enter a downward trend, the long-term growth of savings-type insurance products is optimistic, as seen in other economies.

In addition, after the adjustment, the actual yield of participating insurance products has developed an increasingly clear premium compared with that of traditional insurance products, and CICC expected that the attractiveness of participating insurance would increase.

Related News: CLSA Prefers PING AN for CN Insurers, Remains Cautious on CPIC, CHINA LIFE and NCI

As to whether the introduction of regulatory policies means that potential policy catalysts have arrived, CICC believed the Notice's contents have been anticipated by the market, but the Notice also reflected regulatory attitudes and directions of efforts, namely to prevent potential financial risks such as the negative spread (between products' return rates and investment returns) and to promote the sustainable development of the industry.

In this direction, the broker believed that there are reasons to believe that if the interest rate environment remained challenging in the future, there are still more expected measures to improve the operating pressure of the industry.

Thus, the Notice does not signify the complete arrival of policy catalysts, but instead may sign the start of operating pressure improvement in the sector.

Source: AAStocks Financial News

http://www.aastocks.com/en/stocks/analy ... stock-news

[behappyalways]

California-Based Insurer Crashes Amid Billions In L.A. Area Fire-Damage Losses
https://www.zerohedge.com/markets/calif ... s-billions

[behappyalways]

Visualizing America's $1.7 Trillion Insurance Industry
https://www.zerohedge.com/markets/visua ... e-industry

[winston]

Locals drive Hong Kong life insurance sales to record; Middle East, Southeast Asia rise

by Enoch Yiu

New life insurance sales in the first nine months of 2024 stood at HK$169.6 billion (US$21.8 billion), the highest since the authority set up in 2016

Sales grew 15.7 per cent in the first nine months of 2024 to HK$169.6 billion (US$21.7 billion), from HK$146.5 billion in the same period in 2023, according to the Insurance Authority (IA).

Mainland customers snapped up Hong Kong’s coverage as hedges against the yuan’s depreciating value against the US dollar, helping to spur the city’s sales to the highest level since the IA’s establishment in 2016.

“People from around the world, including Indonesia, the Philippines and Singapore, are buying life policies in Hong Kong”

“An increasing number of Middle East visitors are buying policies in Hong Kong.”

Source: SCMP

https://www.scmp.com/business/banking-f ... pe=section

[winston]

China/Hong Kong Insurers – Preference for defensive positioning

China’s insurance sector has continued to grow at a moderate pace based on premium income growth trends.

Despite positive growth trends, the share prices of the Chinese life insurers have come under pressure in recent months.

We believe this can be partly attributed to the sharp dip in the 10Y Chinese government bond yield. This declined from 2.03% at the start of Dec 2024 to 1.66% as of 16 Jan 2025, thus raising concerns over asset-liability matching.

A lower return that is below the blended funding cost would exert downside risks to solvency capital ratios and this could also have an adverse impact on future dividends growth. The situation has not been helped by the relatively weak performance of the A/H share markets.

The downtrend in the Chinese government bond yield suggests that the Chinese insurers may look to further lower their embedded value (EV) of long-term investment assumptions and its risk discount rates (RDR) in 2025.

To mitigate this, we believe the insurers will focus on driving more participating product sales, which can help to manage its cost of liability as the guaranteed rates on these products are lower.

They will also aim to improve the productivity of its agents, and look to invest in longer duration bonds.

There is also the possibility that the guaranteed rate on traditional insurance savings products would be further lowered by industry players, thus helping to narrow the gap between asset returns and liability costs.

Should the downward revision in long-term investment assumptions materialise, we believe Ping An Insurance Group (Ping An) and China Life will experience the least negative impact among the major Chinese life insurers.

Notwithstanding the near-term headwinds as illustrated earlier, we believe the insurance sector’s fundamentals remain solid over the longer-term. This is underpinned by opportunities created from demographic changes, particularly an aging population and rising life expectancy, which will inadvertently result in higher demand for protection and wellness products as well as health and senior care services.

Besides personal wellness and protection needs, the increasing frequency of extreme weather events due to climate change has illustrated the importance of property and casualty (P&C) insurance.

While Chinese insurers are unlikely to be directly impacted by potential tariffs from the Trump administration, there will be second order effects from slower economic growth and volatile financial market conditions, which in turn could sap the demand for insurance products and services, especially protection-type products rather than savings-related products.

Coupled with the challenges from the interest rate downtrend, we recommend investors to position more defensively until headwinds abate.

We like PICC P&C [2328 HK; FV: HKD14.95] as we believe its business model is more resilient in an interest rate downcycle and is also less cyclical.

We also like AIA Group [1299 HK; FV: HKD88.35] for its high quality and diversified business model, as well as its focus to enhance shareholder returns via share buybacks and dividends.

Ping An-H [2318 HK; FV: HKD67.45] rounds up our sector top picks list, as it has more diversified business segments compared to its Chinese peers, while property easing measures will help to alleviate some concerns over its exposure to the real estate sector. Furthermore, Ping An will see the least negative impact among the major Chinese insurers if the EV of long-term investments and RDR assumptions are lowered, as highlighted earlier.

Source: OCBC

[winston]

China: Insurance Investments

Starting this year, 30 per cent of the annual insurance premium earned from new policy sales will be invested in China’s onshore markets, Wu Qing, the chairman of the China Securities Regulatory Commission, said on Thursday.

These investments would increase by 10 per cent every year over the next three years, he added.

At least 100 billion yuan (US$13.8 billion) of insurance funds will be allocated for the stock market in a pilot programme within the first six months, half of which will be approved before the Lunar New Year that commences on January 29, said Xiao Yuanqi, the vice-chairman of the National Financial Regulatory Administration.

Source: SCMP

[winston]

<Research>M Stanley: CSRC Encourages Big State-owned Insurers to Invest 30% of New Premiums in A-shrs, Believes CN Banks to Be Main Investment Option

The China Securities Regulatory Commission (CSRC) encouraged large state-owned insurers to invest 30% of their new premiums in A-shares, suggesting that Chinese banks will likely become a major investment option for state-owned insurers due to their attractive dividend yield and stable dividend payout ratio, Morgan Stanley released a research report saying.

More rational and long-term policies and credit cycle bottom should support the sustainable development of the financial market and the satisfactory performance of banks.

Morgan Stanley believed that several factors will continue to drive the performance of Chinese banks, including the possibility of a more constructive market view on banks' operating metrics and the expansion of fiscal policy support, buffering the tail risk of banks' credit quality, etc..

Source: AAStocks Financial News

http://www.aastocks.com/en/stocks/news/ ... -news/AAFN