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1 From core finance to technological empowerment, the ecosystem strategy leads the development
1988-2018 For thirty years, Ping An of China has always taken insurance as the core and has continuously improved its comprehensive financial and technological layout. From adhering to the "professional and value" of insurance in the early stage to focusing on the balanced development of the three major businesses of "insurance, banking, and investment" in the growth stage, to "improving the comprehensive financial layout", and then to the "financial + technology" at the current stage, the company has made great progress with the support of its forward-looking development strategy.
Under the low debt cost and balanced development strategy of the main insurance business, the anti-cyclical attributes are stronger and the investment value is highlighted. Ping An's early stock price performance was only in the middle of the industry and did not reflect a significant valuation premium. The company has adhered to a balanced development strategy for a long time, and the continuous optimization of the insurance business structure and the continuous improvement of the value rate have made its performance better than its peers. Excluding the highs of secondary new stocks in the first year after listing and the historical bottom of the 2008 financial crisis, China Ping An's stock price has increased by 6 times since 2009, which is much higher than its peers. In the past two years, the valuation has also been significantly restored. Especially since 2018, under multiple pressures such as ① Structural adjustment of the personal insurance industry and new orders under pressure; ② Long-term interest rates have fallen and stock market fluctuations; ③ Commercial vehicle fares have deepened, and the comprehensive cost rate remains high; ④ Under multiple pressures such as complex external environment, Ping An has low debt costs, high agent quality and business quality, and its performance is more stable than its peers in countercyclical terms, and its valuation premium is significant. On the other hand, the overall investment returns of insurance companies are not much different, but Ping An NBV growth rate is generally higher than that of peers and EV growth rate is generally more stable. Therefore, the standard deviation of the monthly average return rate of stock is lower than that of peers, and the gap with peers further increases, indicating that the stock price volatility is relatively small, the anti-cyclical attribute is stronger, and the investment value is highlighted by .
Traditional financial business has market leading, technology feeds back to finance: Ping An Life insurance , property insurance business scale firmly ranks second in the industry, life insurance NBV and property insurance underwriting profits have grown steadily, and continue to be better than peers. Ping An Bank operations remain stable and bad debts are repaired, and retail transformation continues to deepen. Asset management business is affected by the macro environment, the scale and profits of trusts, securities and third-party asset management have all contracted, but they are generally better than the industry. At present, through the application of AI technology, the efficiency of traditional finance has significantly improved - taking insurance claims as an example, Ping An handles 11 million+ claims annually, 98.7% of the same-day compensation, and 60% is self-service claims, and "technology empowers finance" has been gradually realized. Specifically: ① Ping An Life Insurance’s employee increase uses AI selection and AI interview technology, and the recognition rate of retained agents in 13 months reached 95.4%. At the same time, with the help of AI, we can realize group operation and continuously improve the timeliness of underwriting, insurance, claims and other services. As of 2018, there were 19 million AI automatic underwriting life insurance policies, accounting for 96% of the insurance applications. ② Ping An Property Insurance uses AI image recognition technology to determine loss in seconds and face recognition technology to pay online, providing 62.6% of customers with one-stop claim services such as self-service claims and video claims. As of 19H, the cumulative cost savings were about 100 million yuan. ③ Ping An Bank’s inclusive business has achieved 100% onlineization, and AI application has helped reduce the amount of non-performing loans by 67%.
actively builds five major ecosystems and develops rapidly in technology businesses: As of 19H, Ping An Technology has accumulated more than 18,000 patent applications in core technology fields such as artificial intelligence, blockchain, and cloud. Ping An is accelerating the transformation of scientific and technological achievements and actively building five major ecosystems of "financial services, medical and health, automobile services, real estate services, and smart cities". Among them, the three major ecosystems of finance, medical care and automobile have basically been formed, and the real estate services and smart city ecosystem are still in the brewing stage. Using to help the use of technology, the group has successfully incubated a number of financial technology companies such as Lufax Holdings, Financial One Account, Ping An Good Doctor, Ping An Medical Insurance Technology, etc. In terms of profitability, Financial One Account has successfully blocked 15 million frauds with the help of AI, reducing losses of US$45 billion (planned listing); Lufax (planned listing) and Autohome (listed in the US stock market) have achieved profitability; Ping An Good Doctor (listed in the H stock market) is expected to break even.At present, most of the main businesses in the ecosystem are in the early stages of incubation and development, and still need the support of traditional financial services. With the continuous incubation of various businesses, is expected to become an important source of incremental profits and a customer traffic diversion port for traditional financial services. By increasing investment in technology and continuously strengthening "technology empowers finance and technology empowers the ecology", ultimately realizing "ecological empowers finance" through flow monetization.
is similar to peers. In the early days of its establishment, Ping An mainly operates property insurance business. However, property insurance demand is relatively rigid and the business scale is limited. In 1994, the company quickly started a life insurance business with a potential market demand. It also learned from AIA to take the lead in introducing personal marketing among domestic insurance companies and quickly build a modern insurance business platform, laying a first-mover advantage for the rapid development of personal insurance channels. After the completion of the property and life insurance division in 2002, the company established Ping An elderly care, Ping An Health Insurance and Ping An Asset Management (2004-2005), with the accelerated professional operation process and rapid development of insurance business.
to form a comprehensive financial system with insurance and banking as the core. comprehensive financial layout began with Ping An Trust (established in 1995) and Ping An Securities (1996). In 2003, the company acquired 50% of the equity of Fujian Asian Bank through an equity transfer agreement, and the banking business officially began; in 2006, it acquired Shenzhen Commercial Bank to expand its commercial banking business resources; after two major asset restructurings in 2010 and 2011, Shenzhen Development Bank absorbed and merged the former Ping An Bank, and renamed Ping An Bank, operating nationwide banking business. At this point, a comprehensive financial system with insurance and banking as the core has basically been formed, laying a strong foundation for customer migration and transformation, cross-selling and steady growth of value, and the synergistic benefits have been continuously enhanced: in 2010, the Group achieved new premium of 10.5 billion yuan through cross-selling, which reached 51.5 billion yuan in 2018, with a CAGR of 23%; 19H has reached another level to 28.3 billion yuan (YoY+15%), and cross-selling is expected to continue to contribute new orders in the future.
Ping An began to deploy comprehensive financial business as early as 1995, and created the earliest online financial product sales website PA18 in 2000. Internet genes and securities, trusts, asset management, banking and other businesses have gradually developed and matured. The cross-penetration of customers in various product lines has been continuously improved, and the number of average customer contracts has been continuously increased. Therefore, we cannot judge the development of the group based on insurance alone, but should start from the perspective of comprehensive finance to find the driving factors of operating profits.
As of 19H, the group's operating profit was 73.5 billion yuan (YoY+24%), of which the institutional business operating profit was 6.9 billion yuan (YoY-23%), accounting for 9% of the group's operating profit. Group insurance, bank-to-public, trust and brokerage firms’ institutional clients have limited long-term growth; among the five major ecosystems, major institutional businesses such as Ping An City Technology, Ping An Smart City , and Medical Insurance Technology will become new additions to the development of the institutional business and are expected to help the risk control of personal business.
The profit of personal business mainly depends on the incremental customer volume and average customer profit. As of 19H, the operating profit of personal business was 66.6 billion yuan (YoY+32%), accounting for 91%, which is the main source of operating profit. After splitting, we found that the increase in customer increments and average customer profits directly determine the growth rate of personal business operating profits. Specifically:
(1) In the early stage of the expansion of new business, average customer profits are certain, and the increment of customers directly determines the increment of profits. The five major ecosystems will become the main source of individual customer increments. ①In recent years, among the new customers, the proportion of traditional financial individual customers has continued to decline, and the proportion of individual customers in the five major ecosystems has continued to increase, with 66% and 34% respectively in 19H, and the proportion of individual customers in the ecosystem has reached +24pct in 2015. 19H Group added 20.09 million new individual customers (YoY-22%), and the growth rate of new customers in the ecosystem and traditional channels declined. ② The group's traditional financial business is relatively mature, and the growth of traditional financial customers is limited; at the same time, among the five major ecosystems, Lufax, Autohome, and Ping An Good Doctor are the main sources of personal business. Among them, Lufax and Autohome have achieved profitability, and the traffic growth rate may slow down in the future; Ping An Good Doctor is still in the later stage of traffic accumulation and is basically close to the break-even point.Therefore, the role of traditional business customers in driving the growth of ecosystem users will be limited, and in the future, the transformation of users in ecosystems into customers will become the main growth point for individual customers.
(2) In the long run, the increase in customer volume is limited, and increasing average customer profits is the main way for personal business operations to continue and steadily grow profits. average customer operating profit depends on the profitability of the product and the average customer contract quantity. The high-value life insurance business, retail business with continuous increase in profitability and financial technology business have helped the average customer operating profit to continue to increase. As of 19H, the group's average customer operating profit was 340 yuan (YoY+21%).
①Lufax mainly engages in three businesses: wealth management, personal lending and government finance. In terms of its customer migration path: In 2015, a total of 300,000 Lufax users were converted into core financial customers (3, 5, 180, 40,000 people in life insurance, property insurance, banking, and securities respectively), while the conversion of core financial customers to Lufax users was as high as 4.19 million (105, 79, 210, and 250,000 customers in life insurance, property insurance, banking, and securities business customers were respectively). Although has limited conversion to core financial customers, its personal lending business is deeply intertwined with property insurance business and continues to contribute profits.
As of 19H, the loan balance of Lufax's personal lending business was 407.9 billion yuan (YoY+30%), which is Lufax's main source of profit (it is expected to contribute 50% of the profit), and it is also a larger risk point. In order to prevent credit risks, all borrowers forcefully purchase guarantee insurance , and the main partner is Ping An Property Insurance. 19H guaranteed insurance premium is 15.3 billion yuan (YoY-6%); Lufax and Ping An have outstanding risk control capabilities and good business quality, with a comprehensive cost rate of only 93.2% (YoY+6pct), and still achieve underwriting profit of 800 million yuan (YoY-20%), with a slight decline in business quality, but the company's timely reduction in scale (or it may be a cessation of some high-risk businesses), which will help continue to achieve underwriting profits.
At present, its P2P platform Lufax is actively responding to the "three reductions" requirements for supervision and will gradually withdraw from P2P business, or transform it into an online micro-loan and consumer finance company encouraged by supervision. As of the end of June 2019, the balance of P2P business loans was 98.4 billion yuan (only 24% of Lufax's 407.8 billion AUM), the overdue rate of more than 30 days was 2.15% (about 1/3 of other P2P platforms), and the conservative estimate is 4%~5%.Ping An holds 41% of the equity of Lufax Holdings. After deducting bad debts, the net profit of 's P2P business in the first half of the year was approximately 3.9 to 4.8 billion yuan, which will contribute 1.6 to 2 billion yuan of the group's net profit, with an impact of less than 2%. Under the long-term equity investment calculated by the equity method, Lufax 19H's net amount at the end of the period was 25.6 billion yuan, which actually contributed 10.5 billion yuan of the group's net assets; has little impact on the group's net assets of 764 billion yuan and 1.1 trillion yuan of EV. At the same time, and this adjustment, the existing business will not be affected, and the actual profit and EV impact should be calculated.
②AutoHome uses big data to empower merchants and increase sales through in-depth industry connections; C-end realizes traffic expansion and enhances customer stickiness by covering the entire life cycle of car selection, car viewing, and car use. Based on car purchase and other scenarios, it directly drives the consumer finance business of banks and Lufax (car business loans, consumer loans, etc.); and realizes momentum transformation through precise marketing, indirectly drives a great growth in auto insurance, guarantee insurance, etc. 19H has contributed a total of 11.2 billion yuan in financial loans and insurance transactions, and is expected to achieve further growth throughout the year (at 15.8 billion yuan at the end of last year).
But unlike Alibaba and Tencent, which have basic consumption and basic social scenarios, the audiences of Ping An’s five major ecosystems are based on specific and single scenarios. Therefore, the conversion rate of household is likely to be relatively low and the customer stickiness is relatively limited. However, after the user conversion is successful, the comprehensive financial operation powered by technology will make the customer experience significantly better than other financial platforms. At the same time, the risk control capabilities of the main business of comprehensive finance are relatively high, and process optimization may be more prominent. The richness of products and the professionalism of marketing will jointly help Ping An to quickly grasp customers' financial needs, thereby improving customer stickiness and average customer contract count, and driving operating profit growth.
Natural advantages of governance genes: private foundation + equity dispersion = market-oriented operation
The company's equity is scattered, and foreign capital, state-owned, private, and the public jointly hold shares. As of the end of 2018, the major shareholders holding more than 5% of the shares were: Bufeng Group (9.19%), Securities Finance + Huijin (5.64%, 2.99%/2.65%), and Shenzhen Investment Control (5.27%) under the Shenzhen State-owned Assets Supervision and Administration Commission. The company's equity is scattered, clear and balanced, there is no controlling shareholder, nor an actual controller, the power distribution is relatively even, and there is a check and balance mechanism among shareholders, giving management more room to exert subjective initiative.
Core leadership is stable and the management system is efficient. Most of my country's large financial enterprises are central enterprises and state-owned enterprises. The term of office of the chairman is three years and can be re-elected, but the term of office of the chairman is generally less than six years (up to two terms), and there is a hidden danger of frequent replacement of strategic decisions. Ping An’s management team with Ma Mingzhe as the core has been in office for more than 20 years. It has grown together with the group and is well aware of various businesses. Its strategic decisions are targeted and sustainable. At the same time, the strategic decisions of the core management can be efficiently transmitted, making the safe management system more efficient and the mechanism more flexible.
Continuously improves the incentive and constraint mechanisms to form a community of long-term interests with employees. In February 2015, Ping An established a core personnel shareholding plan, which lasts for 6 years. As of 2019, five phases have been implemented, benefiting thousands of employees, truly realizing the sharing of interests and risks of shareholders, companies and employees. At present, the main listed peers have not yet launched equity incentive plans, and Ping An’s employees are deeply bound to the company’s interests, which will help accelerate the transformation of traditional financial businesses and the implementation of technology, ecology and other businesses.
Company established a long-term service plan in December 2018. The plan is once a year, with the upper limit of the long-term service plan for the current year = net profit for the current year × N1. Participants are core talents that play an important role in the company's overall performance and long-term development. On May 14, 2019, the first period of long-term service plan shares repurchased, and a total of 54.29 million A shares were purchased, accounting for 0.297% of the company's total share capital, and the average transaction price was approximately RMB 79.10 per share.The employees participating in this long-term service plan mainly include: Ma Mingzhe, Sun Jianyi , Li Yuanxiang and Ren Huichuan , etc. Long-term service plan participants submit an application for ownership when they retire from the company, and finally obtain the ownership of the plan's rights after they are confirmed and the relevant taxes and fees are paid. It will also strengthen the long-term binding between company interests and employee interests, ensure that employees consciously promote the company's sustainable development and continuously create value for shareholders.
In October 2018, the board of directors reviewed and passed the "Repurchase of Company Shares and Related Authorization Plan", with the authorization amount of 10% of the total issuance share capital. The company plans to use 5-10 billion yuan of its own funds between 2019/4/29-2020/4/28, accounting for approximately 0.273%-0.546% of the total share capital. The current upper limit of the repurchase price is adjusted to 99.39 yuan per share. This repurchase began on June 19, 2019. As of now, a repurchase limit of 5 billion yuan has been reached. will be used in the company's employee stock ownership plan, including but not limited to the long-term service plan for the future year, demonstrating the company's confidence in its own development.
specially set up an executive committee to implement matrix management. As an investment holding company that develops comprehensive financial business, Ping An Group does not operate specific businesses and insists on separate operations and supervision. To this end, an executive committee is specially established at the operating level, and the group is responsible for the daily operation and management of the group during the recess of the shareholders' meeting and the board of directors. The members are composed of the CEO and the leaders of each subsidiary. The Executive Committee is the group's highest decision-making body, and is responsible to the board of directors. It has a professional decision-making management committee, a matrix management of subordinate professional companies, and makes collective decisions on major matters. This makes Ping An’s strategy formulation forward-looking and strategic execution efficient. In the 30 years of development, the pace has not lagged behind due to its huge scale. Instead, it has continuously incubated new growth points with traditional financial transformation, technology and ecology leading development.
upgrades the collective decision-making mechanism, and the joint CEO+matrix system promotes strategic transformation. In recent years, with the continuous advancement of the group's "financial + technology" and "financial + ecology" strategies, the comprehensive financial business model has gradually formed three main business lines: "personal business + company business + technology business". In 2018, in order to develop management and risk control of new business models, Ping An added three co-CEOs - Li Yuanxiang, Xie Yonglin, and Chen Xinying, on the basis of the executive responsibility system, to be in charge of personal business, company business and technology business respectively. The establishment of the co-CEO is conducive to the group's continuous practice of collective decision-making, division of responsibilities, and matrix management. On the basis of accelerating the integration of internal resources, improving collaborative efficiency, and strengthening risk control, it accelerates the promotion of the science and technology and ecological transformation strategy.
3 Life Insurance Business: Adhering to diversified and stable development, the anchor of stable valuation
2007 Ping An Life Insurance has developed rapidly since its listing of the A-share market in 2007. As of 19H, the total premium income of life insurance was 370 billion yuan (YoY+5%), and the CAGR from 2007 to 2018 was as high as 20%. The market share is 17%, ranking second in the market all year round.
Life insurance pre-tax operating profit = residual marginal amortization + net asset investment income + interest rate spread income + operational deviation and others. Since the remaining margin is set at the time of issuance of the policy and is accrued in order to not confirm the first daily profit, it is actually the present value of the policy's profit in the future year, the remaining marginal amortization is the main source of life insurance operating profit. Among Ping An Life Insurance's operating profits, the remaining marginal amortization sales account for about 90%. Long-term and stable residual marginal amortization helps life insurance profits grow steadily. As of 19H, Ping An Life Insurance's remaining marginal balance was 867.4 billion yuan (+10% from the end of the previous year), and the remaining marginal amortization was 35.8 billion yuan. Ping An uses the effective insurance amount as the residual marginal amortization carrier. In recent years, the overall amortization ratio has remained at 10%-11%. In the future, it may decline slightly with the narrowing of the marginal contribution of new businesses, but overall remains stable. 19H Life Insurance's pre-tax operating profit was RMB 54.9 billion (YoY+15%) and the remaining marginal amortization contribution accounted for 65% (YoY+3pct), which is the main source of driving force to boost the group's profit growth.
Short-term pressure does not hinder long-term development.During the good start of , Ping An Shou's main products were annuity insurance with a pricing rate of 3.5% and dividend insurance with a 2.5% dividend insurance with a , and the growth of new orders was slightly under pressure. The total new orders for 19H were 101.3 billion yuan (YoY-5%) and the new orders for personal business were 87.8 billion yuan (YoY-7%), but the decline in new orders has narrowed significantly compared with 18H. At present, 4.025% of the products will no longer be approved, and the agents of the public company adapt earlier. Sales pricing interest rate are only sold. Saving 3.5% savings insurance products will help the growth of new orders in the future better than peers
High-quality agents help individual insurance premiums maintain a high proportion throughout the year, and have an excellent term structure. insurances have always been the main channel of Ping An Life Insurance. The long-term emphasis on futures payment business has led to a high proportion of new orders for Ping An individual insurance during the period and a steady increase, helping the continuous growth of individual insurance renewal. Since the A-share listing, the proportion of individual insurance premiums in the total life insurance premiums has always remained at 80%+, and the proportion of individual insurance renewal has accounted for about 70% of the total renewal, and the proportion of individual insurance new orders in the total new orders has increased from 50%+ to 70%+. As of 19H, Ping An individual insurance premiums were 316.7 billion yuan (YoY+3%) and new policy premiums were 71.7 billion yuan (YoY-12%), of which 66.8 billion yuan (YoY-14%) were paid in the first-year premiums, accounting for 76% of the total new policies, which has formed a trend of driving the growth of total new policies with individual insurance payments.
agent has outstanding sales capabilities, and long-term, high-value product sales are smooth, helping individual insurance NBV continue to grow, NBVM remains high, and becoming the source of life insurance value . Personal insurance products have strong profitability and high NBVM; under the dual role of high-quality agents and brand premium capabilities, new personal insurance orders have increased steadily. Promoting individual insurance business to become the main source of Ping An Life Insurance’s value, and its share in life insurance NBV has remained at around 90% for a long time. As of 19H, Ping An Life Insurance NBV was 41.1 billion yuan (YoY+5%) and the personal insurance NBV was 36.2 billion yuan (YoY+3%), accounting for 88% of the total NBV; the personal insurance NBVM was 59% (YoY+10pct), which was more than 15pct higher than the total NBVM, but it was still 10pct lower than the AIA Personal Insurance NBVM (70%). At present, the long-term insurance NBVM has reached a high level. In the future, it is expected that the personal insurance NBVM will be further improved with the optimization of the savings insurance structure.
In August 2000, Ping An Life Insurance took the lead in launching the dividend-type savings insurance "Millennium Red" at the bank counter, thus opening the huge screen of bank insurance. After bank branches relaxed the agency restrictions on insurance companies in 2003, bank insurance account managers were quickly introduced in order to improve the term structure and profit margin of bank insurance business. Although it was the first to open the bank insurance channel and has a bank subsidiary, Ping An’s dependence on bank insurance has always been low: in 2009, Ping An’s bank insurance channel’s new orders and total premiums accounted for only 42% and 21%, far lower than the level of 70%+ of peers . At that time, the life insurance business was poor (mainly lump sum payment) and the channel was single (high proportion of bank insurance), which led to large fluctuations in premium growth, which was very likely to cause problems such as solvency, surrender, and cash flow. Therefore, from November 2010 to 2014, the former China Insurance Regulatory Commission issued several notices to increase sales management of bank insurance channels. Ping An responded quickly. From
Improved term structure helps the bank insurance NBVM improve. Although the new bank insurance policy in reached 27.1 billion yuan at its highest in 2009, NBV contribution has always been low, mainly because most of the products sold are high current prices and lump-sum payments, and NBVM is lower. For a long time, Ping An Bank Insurance NBVM has less than 5%, and its large changes mainly occur when the proportion of payment in the first year increases. In 2017, the proportion of first-year payments in the new bank insurance policy jumped from about 30% to 60%; 19H further increased to 86%, and the improvement of the term structure helped the bank insurance NBVM to rise sharply to 10% in 2017 and 19% in 19H respectively. However, compared with AIA, NBVM is still at a low level (Ping An 19% vs AIA 50%) and NBV accounts for a relatively low proportion (Ping An 2% vs AIA 30%). We infer that it is mainly due to AIA's better business structure.
High-quality agents are conducive to developing mid and high-end customers and have more sales advantages in central urban areas. Ping An is mostly mid-to-high-end customers, with 72% of customers with annual revenue of more than 100,000 in 19H, and the average customer contract number of mid-to-high-end customers is higher (ranging from 2-11 shares). With the same product profitability, the average customer profit will be higher, helping Ping An Life Insurance to establish a market competitive advantage in economically developed regions. Guangdong, Shandong, Jiangsu, Beijing and Zhejiang are the five major regions with the highest contribution to Ping An Life Insurance. In 2018, the total contribution was 41% of the total premium. Among them, the market share of Beijing, Shanghai and Guangdong was 24%, 19%, and 23%, respectively, which was significantly higher than that of peers.
Ping An Life Insurance product line is rich, savings insurance focuses on the "xx life" series of dividend insurance, and protection insurance is the main product of "Ping An Fu". Ping An Life Insurance provides customers with various types of products including critical illness, accident, medical insurance, lifetime life insurance and savings insurance. Each type of insurance covers a variety of product plans - Xiyue Life, Jinrui Life, Jinxi Life and other series of main savings insurance products, providing different insurance periods and annuity payment structures; at the same time, Ping An Fu, Fu Full Score, and other various insurance insurances provide multiple choices for disease, accident, and death protection. The rich product line directly brings multiple possibilities of customer service and fully meets the different needs of customers. In July this year, Ping An launched Big and Small Fortune Stars, reducing the liability for compensation for minor illnesses, and reducing the average premium of 1,000-2,000 yuan, opening up the product gradient and further segmenting the customer base, which is conducive to taking the lead in seizing some groups with guaranteed needs but limited income and reserve customer sources.
my country's personal insurance industry is still in the late stage of development, and consumption habits and product pre-order interest rates have led to the rapid growth of short-term savings insurance in the dividend period. After a brief development in the 1990s, the central bank began to cut interest rates seven times in 1996, and the one-year deposit rate dropped sharply from the high point in 1993 (10.98%) to 2.25% in 1999. The former China Insurance Regulatory Commission avoided the emergence of a new round of potential interest rate spread losses and lowered the predetermined interest rate of life insurance products to 2.5%. In order to improve product competitiveness, new life insurance products with wealth management attributes such as investment-linked insurance, dividend insurance, and universal insurance came into being, and have continued to occupy half of life insurance for many years since then.
From the perspective of total premium, 1) dividend insurance and universal insurance account for 50%+, and in recent years, dividend insurance is mainly mainly used. ①In 2010, among the top five products of Ping An Life Insurance, universal insurance occupied 4 seats, and has disappeared since then. Mainly, since 2011, the transformation of bank insurance channels has begun. The proportion of universal insurance hit a high point in 2009 (43%) and then fell to 19% in 2018. Except for the brief rebound after the liberalization of universal insurance reservation interest rates in 2015 (30%), the proportion of universal insurance has always remained at around 20% in recent years, and it has operated steadily. ② The proportion of dividend insurance continues to remain around 40%, which is the main type of life insurance. Since 2011, among the top five products, dividend insurance has dominated the market, accounting for 4-5 seats. Ping An Fen Red Insurance is mostly delivered products on 3/5/10 years, with a predetermined interest rate of 2.5%, both items are high, the debt cost is low, and the insurance period is long (15 years or lifetime). Although the value rate is limited (expected to be about 20%), the low debt cost helps reduce the company's potential interest rate spread loss risk.
For a long time, Ping An has adhered to the diversified and balanced development strategy, and has not single development insurance due to high value (the proportion of long-term protection products is lower than that of peers, 50% of Pacific Insurance and 60% of Xinhua in 2018), nor has it developed too much short-term payment savings insurance due to rapid expansion of scale (bank insurance transformation is decisive, lump payment has dropped by 20 billion yuan in two years, and has not caught up with the universal risk trend). Among the first-year premiums of , Ping An long-term insurance type 2, short-term savings saving type 3, and long-term savings products have maintained the first-year premiums of around 40%, 30%-35% and 6%, respectively. In 2018, NBVM was 95%, 55%, and 18%, respectively, but the long-term insurance NBVM was significantly higher than the short-term savings saving type, which directly led to a widening gap in the proportion of NBV: In 2018, NBVs were 490, 76%, and 5.2 billion yuan, respectively, accounting for 68%, 10%, and 7%. , and AIA's main products are high-value long-term insurance (serious illness + lifelong life) and long-term savings insurance (dividend + lifelong lifelong life), with NBV accounting for about 40%-45% and 35%-40% respectively. The better product structure makes AIA's overall NBVM (60%) higher than Ping An (44%). At present, Ping An short-term storage products have been fully developed and NBVM is not easy to improve. NBVM for long-term insurance and long-term savings insurance are at a high level. Therefore, the future improvement of NBVM mainly depends on the optimization of the savings insurance structure .As of 19H, Ping An’s new long-term savings insurance accounted for 6% (YoY+2pct), and the new short-term savings insurance accounted for 30% (YoY-7pct). The optimization of the savings insurance term structure helped NBVM improve, and the 19H savings insurance NBV accounted for 24% (YoY+5pct).
From the industry perspective, long-term savings insurance and long-term protection insurance are both absent, and short-term savings insurance demand is still there. Ping An’s diversified and balanced development strategy meets the current requirements. At the same time, since most consumers in mainland China still need to cultivate their insurance awareness, limited purchasing power, and the market still needs to be developed, Ping An cannot directly follow the single model of AIA and Prudential "long-term saving insurance + long-term protection insurance". It still needs to continue to use long-term value products such as "long-term saving insurance + long-term protection insurance" and short-term customer acquisition products such as "short-term saving insurance + short-term protection insurance (such as medical insurance, accident insurance)" as the supplement, so as to maintain the growth of business value, and then continuously develop customers and increase average customer profits.
From the perspective of insurance companies' absolute valuation, considering the future growth of new businesses, the long-term assessed value of insurance companies AV=included value EV+new business multiple N*new business value NBV, the new business multiple is the growth space of the future NBV. Without considering future growth (that is, N=0), AV=EV=effective business value VIF+adjusted net assets ABV.
2018, 4 AIA EV was US$54.5 billion, NBV was US$4 billion, Ping An Life Insurance EV was RMB613.2 billion, and NBV was RMB72.3 billion; as of September 6, 2019, the market value of AIA and Ping An Life was US$123.5 billion (converted at the exchange rate on the same day) and 968.5 billion (because the operating profit and EV of life insurance business accounted for 60%+, and the market value of life insurance was calculated based on 60% of the total market value of China Ping An A shares), and the new business multiples corresponding to AIA and Ping An Life were 17x and 5x respectively.
The insurance industry in mainland China is still in the late stage of development, and Ping An’s annualized new order growth rate is higher. Ping An Life Insurance’s new order growth is likely to be better than AIA. Even if the growth rate shifts in the future, the new business multiple will be at least 10. On the one hand, except for the industry adjustment period, Ping An Life Insurance's annualized new single-year compound growth rate is significantly higher than that of AIA. As of 2018, Ping An and AIA’s new annualized orders were 144.7 billion yuan and 6.8 billion US dollars respectively, and the CAGR since 2008 was 21% and 11% respectively. On the other hand, as of 2018, my country's life insurance depth was 2.7% and its life insurance density was US$225 per person, far lower than that of the United States (2.8%, US$1,674). Consumers' demand for protection, pension, etc. is still relatively large, so the potential market space for insurance in mainland China is much greater than that of Hong Kong, China. According to the Hong Kong Insurance Regulatory Bureau of China, the insurance purchase scale of mainland Chinese visitors from 2016 to 2018 was HK$727, 508 and 47.6 billion, respectively, and was HK$12.8 billion in 19Q1, and is expected to be approximately HK$50 billion for the whole year. At the same time, AIA's business accounts for less than 20% of AIA's annualized new order fees. Even if AIA and mainland Chinese consumers go to Hong Kong to purchase insurance, AIA can enjoy the dividends of the mainland Chinese industry, this part of the market is relatively limited. Ping An Life Insurance has been deeply involved in the mainland Chinese market, with strong agent strength and sufficient channels, which will make it easier to seize the industry dividends and achieve continuous growth in new policies and premiums. Assuming that Ping An Life Insurance will only have 30 years of new order inflows and the new order structure is consistent with the current situation, and and the CAGR drops to 10% in the next 30 years (AIA's current level), its new business multiple should be basically the same as AIA (that is, N=18, at this time, Ping An Life Insurance's market value should be 1.9 trillion). For the sake of caution, assuming that Ping An Life's new order will be only 6% in the next 30 years, the new business multiple will be at least 6, which corresponds to Ping An Life's market value of 1.05 trillion, which has 10% growth space compared with the current market value (0.96 trillion).
Ping An’s absolute valuation and relative valuation are both discounted than AIA. From the perspective of relative valuation, Ping An Life Insurance PEV is about 1x-1.5x, while AIA PEV is about 1.5x-2x.From the perspective of absolute valuation, under the prudent assumption, Ping An Life Insurance's new business multiple is 6. Based on the current market value, the EV in 2018 was only 534.7 billion yuan (far lower than the disclosed value of 613.2 billion yuan). And ABV itself is cautious enough, so the discount mainly comes from VIF. When N=6, the VIF is only 321.8 billion yuan, which is only 80% of the disclosed value.
Except for the industry's adjustment period from 2011 to 2013 and 2018, the growth rate of Ping An Life Insurance's new orders and NBV has always been around 10pct higher than that of AIA. From the perspective of EV, due to the large scale of existing business, NBV accounts for only about 10% of EVs at the beginning of the period, and its impact on EVs is limited. Therefore, the growth rate of Ping An EV is not greatly affected by industry adjustments, and the growth rate of Ping An ROEV and EV has been higher than that of AIA 10pct for a long time. It is estimated that when the business structure of 19H2 is certain and NBVM is certain, even if the new single-negative growth is 6%, positive NBV growth can be achieved; at the same time, long-term interest rates stabilize, the diversification of the investment structure resonates with the certainty growth of NBV, and EV will achieve stable growth. It is expected that Ping An Life Insurance's NBV growth rate in 2019 will be around 9%. Under the pessimistic assumption (the investment return rate is higher than the benchmark -50bps), the EV growth rate in 2019 will be about 15%; under the neutral assumption (the benchmark investment return rate is realized), the EV growth rate in 2019 will be about 19%. Therefore, from the perspective of relative valuation, Ping An Life Insurance business should not have discounts compared to AIA. Under the neutral assumption of , Ping An Life Insurance is given 1.9 times PEV, which corresponds to the market value of life insurance is 1.17 trillion, which has 20% room for growth compared with the current market value (0.97 trillion). The discount of
VIF is mainly due to market doubts about actuarial assumptions. Ping An actuarial assumptions are cautious, and both operations and investment have a positive contribution to EV, and long-term equilibrium is assumed, and its VIF should not be discounted. After comparing actuarial assumptions such as risk discount rate, mortality rate, critical illness incidence rate, return on investment, and retirement rate, we found that except for the return on investment, Ping An's actuarial assumptions are relatively cautious. From the perspective of the investment return rate assumption, AIA adjusts with the market, the volatility of the deviation rate is relatively small, and the average annual investment deviation rate is about 0.5%. However, Ping An’s investment return rate is basically fixed at 5%-5.5%, but its overall investment capacity is outstanding compared with its mainland Chinese peers. The investment deviation generally contributes positively to EV, with an average investment deviation rate of 1.8%. From the perspective of operational deviation, AIA and Ping An have high control efficiency; at the same time, actuarial assumptions are prudent, making indicators such as actual dead fee difference and surrender rate better than the assumption in the long run. Therefore, the long-term positive operational deviation can be achieved, with the average operating deviation rate being 0.6%, which is significantly higher than that of peers.
AIA focuses on long-term insurance and long-term savings insurance. At the same time, its investment return rate assumptions adjust in time with market changes, so its sensitivity to investment return rate is significantly lower than that of mainland Chinese insurance companies. It is more sensitive to mortality and morbidity. With the gradual adjustment of the product structure, Ping An has been selling products in recent years with dividend insurance and long-term insurance with low debt costs. 70% of the investment sensitivity of dividend insurance is transferred to the insured, and the insurance is considered to deteriorate serious diseases. Therefore, Ping An NBV and EV have decreased sensitivity to investment and increased sensitivity to morbidity.
Assuming that there is an extremely pessimistic situation of stocks and bonds and economic downturn, Ping An’s investment return rate is 100bps lower than the assumption, and the mortality and incidence rate increase by 10%. When extreme pessimism occurs, the return on assets required by shareholders will usually decrease. Assuming that insurance companies simultaneously reduce the risk discount rate by 50bps, then Ping An Life Insurance’s EV in 2018 is 516.5 billion yuan. In recent years, in Ping An Life Insurance NBV, the proportion of dead expenses and interest rates has remained at 66% and 34% respectively, and long-term insurance products are 75% and 25% respectively. The high level of the proportion of dead expenses and differences will keep the investment sensitivity stable. Even if the risk discount rate assumption is not adjusted, Ping An Life Insurance's EV in 2018 will still be 500.9 billion yuan. At this time, the 1.9 times PEV corresponds to the market value of life insurance of 0.95 trillion yuan, which is basically consistent with the current market value (0.97 trillion yuan). Currently, the liability cost of listed insurance companies is less than 3%, and even under extremely pessimistic situations, there is a high probability that interest rate spread will not be generated; at the same time, in terms of long-term development, insurance companies can generally achieve a total investment return of of or more, so Ping An Life should at least maintain its current valuation level.
4 Property and Casualty Insurance Business: Maintain rapid catch-up under underwriting profits
insurance types are fully set, premiums grow rapidly, and all insurance types achieve continuous profits. As of 19H, Ping An Property Insurance's premium income was 130.5 billion yuan (YoY+10%), with an premium CAGR of more than 25% from 2007 to 2018; the market share was as high as 21% (11pct increase from 2007), ranking second in the market. Continuously achieve underwriting profits, and the comprehensive cost rate is better than that of peers 2-3pct in the long run. However, the proportion of operating profit attributable to the parent dropped from 14% in 2017 to 11%, mainly due to the decline in the growth rate of underwriting profits.
Due to negative growth in new car sales and slowing down in auto insurance growth, the growth rate of Ping An Property Insurance in 19H slowed down to 9%, compared with the end of last year -6pct, but still higher than the peers 2-4pct, and higher than the industry average growth rate of 4-5pct; at the same time, the market share has increased from 8% in 2000 to 20% in 19H, and the gap with PICC Property Insurance has continued to narrow. Specifically: ① Before 2008, the market share was relatively stable, basically maintaining around 10% . ② From 2008 to 2011, the market share quickly rose from 11% to 17%, mainly benefiting from the launch of auto insurance and electric sales channels. In 2007, Ping An launched a telephone marketing channel and quickly promoted it nationwide. While making insurance convenient and fast, private car owners can enjoy up to 15% premium discount. Ping An Property Insurance quickly seizes market share with the help of electric sales channels. ③ Since 2012, we have continuously optimized claims services and vigorously developed non-auto insurance businesses. The market share has steadily increased to 20%, and the gap with PICC Property Insurance has narrowed to 13%.
benefited from the advantages of technology and continued to achieve underwriting profits. As of 19H, Ping An Property Insurance's comprehensive compensation rate and expense ratio were 59% (YoY+2pct) and 37% (YoY-1pct) respectively. The "incorporation of reporting and business" was strict, and the expense ratio dropped significantly; technology helped the compensation rate remained relatively stable and helped underwriting profits. With excellent pricing, risk control and loss determination capabilities, with the increase in technology, Ping An Property Insurance continues to achieve underwriting profits except from 2006 to 2008. All three years are special: ① Auto insurance developed rapidly in 2006, but the business quality declined, causing property insurance to suffer underwriting losses. ② In 2007, the market competition was fierce. The company increased its investment in high-quality businesses to reduce the compensation rate, but the expense rate also increased in the same proportion, and the comprehensive cost rate was basically stable at 102%. In 2008, two major natural disasters led to an increase in compensation expenditure; at the same time, the basic rate of compulsory motor vehicle insurance was lowered, and under the influence of the two phases, the compensation rate directly increased (the compensation for compulsory motor vehicle insurance cases in 2008 increased by 19% year-on-year), resulting in a comprehensive cost rate of up to 104%, and underwriting losses for three consecutive years. In recent years, with the help of AI, the calculation of losses is more accurate and the claims are more efficient. The increase in the
Under the new tax reduction policy, the suppression effect of excess income tax on net profit will be lifted, and ROE will be increased. According to brokerage China, the comprehensive cost rate of the property insurance industry in 2018 was 100.13%, and the underwriting profit for eight consecutive years came to an abrupt end, with an underwriting loss of 1.4 billion yuan. However, Ping An Property Insurance benefited from the group's technological advantages, accurately qualifying losses and quickly settled claims, reducing insurance fraud and controlling claims, and promoting Ping An Property Insurance's underwriting profit of 8.5 billion yuan (YoY+19%) and pre-tax profit of 19.5 billion yuan (YoY+3%) in 2018. Net profit was only RMB 12.3 billion (YoY-8%), mainly due to the increase in income tax expenses caused by the increase in handling fees and business growth. In 2018, the handling fees for property insurance business were 49.3 billion yuan (YoY+27%), accounting for 20% of premiums (YoY+2pct). Of which 5% cannot be paid before tax, resulting in a significant increase of income tax by 31% to 7.2 billion yuan, and the income tax rate increased by 8pct year-on-year to 37%, reducing net profit. At the end of May 2019, the Ministry of Finance issued a document that the pre-tax deduction ratio of handling fees and commission expenses of life insurance and property insurance companies increased from 10% and 15% to 18%, and the excess part was allowed to be carried forward for subsequent annual deductions. After the increase in the deduction ratio of , it will greatly alleviate the tax burden pressure of insurance companies, thereby releasing net profits and supporting diversified operations.Ping An 2018 income tax settlement amount decreased by 1.9 billion yuan, directly increasing the net profit of 19H. Under the strict control of "incorporation of reporting and banking", the handling fees and commission expenses of major property insurance companies in 19H account for less than 15% of premium income, and there is no need to pay additional taxes, which helps increase ROE and increase property insurance valuation.
Three major channels: personal agent, power grid sales and car dealers, and have strong control over the channels. Although the annual report disclosure caliber is different, there is generally a large correlation. We can basically judge channel change based on this:
① It already had the power grid sales gene in the early stage, which facilitates continued efforts in the future. Ping An established the PA18 financial portal and property insurance call center in 2000 and 2003 respectively to provide policy sales, consultation, renewal, claims and other businesses. In 2003, the premiums of agent channels (including banks, car dealers, professional/personal agents) accounted for 64%, and the premiums of direct sales (including internal sales representatives, PA18 financial portals and call centers) accounted for 34%, of which PA18 financial portals accounted for 9%.
②Grid sales have made efforts and quickly gained market share. In 2007, after Ping An officially launched the power grid sales channel business, it quickly seized the market with its preferential prices and convenient services, becoming the main sales channel of property insurance. As of 2016, the power grid sales premium was 63.2 billion yuan (YoY+25%), accounting for 36%, and the auto dealer and cross-selling were 41.5 billion yuan (YoY+22%) and 29.7 billion yuan (YoY+19%) respectively, accounting for around 20% and 15%.
③The commercial vehicle fare reform has been deepened, and the independent channel coefficient is set. The advantage of the 15% special discount for power grid sales channels is no longer there. The proportion of agency channels has risen sharply, and the premiums of cross-selling channels have steadily increased. In July 2016, the commercial vehicle fare reform was promoted nationwide. In 2017 and 2018, the power grid sales premium was 58.9 billion yuan (YoY-7%) and 27 billion yuan (YoY-54%) respectively, and the proportion of premiums dropped significantly by 25pct to 11% in 2018. After the channel coefficient is liberalized, the sales flexibility of personal agents is higher. The premiums in 2017 and 2018 were 32 billion yuan (YoY+88%) and 57.4 billion yuan (YoY+79%) respectively. As of 19H, the proportion has reached 22%, an increase of 10pct in two years. Ping An Property Insurance has nearly 150,000 agents, less than 10,000 direct sales representatives, and a large number of them are part-time agents. There are problems such as uncontrollable false sales and insufficient professionalism. To this end, Ping An launched the "Chuangbao.com APP" to provide standardized training for part-time agents, real-time online tracking and sales process management. The synchronous improvement of manpower and management efficiency has promoted the rapid growth of personal agency channels under policy stimulation. At the same time, driven by the business of life insurance, banks and Lufax, the cross-selling premium of property insurance has increased steadily. As of 19H, it has reached 21.5 billion yuan (YoY+11%), accounting for 17% of the total premium, an increase of 12pct from 2007.
seized the advantages of power grid sales channels. The scale of auto insurance has rapidly expanded, the market share has rapidly increased, and the customer stickiness is high. In recent years, new car sales have declined, resulting in the gear shift in the growth rate of auto insurance premiums. But similar to the industry, Ping An Auto Insurance accounts for about 70%-80%, and it occupies a dominant position in property insurance. As of 19H, the premiums in the auto insurance industry were 396.6 billion yuan, and Ping An Auto Insurance had a premium of 92.3 billion yuan (YoY+9%), with a market share of 23%. The CAGR from 2007 to 2018 was more than 25%, significantly higher than the industry (18%). In order to improve the stickiness of existing customers, Ping An launched the service commitment of "less than 10,000 yuan, complete information, and three-day compensation" in 2009 to optimize the customer experience; starting from 2014, the "Ping An Good Car Owner" APP opened up the offline platform, and in-depth cooperation with 4S stores, repair shops and maintenance chain stores to provide comprehensive automotive aftermarket services.
Auto insurance continues to achieve underwriting profits, and profitability rebounds after the fee reform, and technology empowerment helps achieve excess underwriting profits. While car insurance premiums grew, underwriting profits were worry-free, but underwriting profits continued to decline from 2011 to 2015, mainly because the proportion of compensation expenditure in premium income increased from 44% in 2010 to 53% in 2013. In 2016, the second-wheel commercial vehicle fare reform was promoted nationwide. The former China Insurance Regulatory Commission liberalized the channel coefficient and underwriting coefficient of commercial auto insurance. The growth rate of auto insurance premiums slowed down. With the intensification of market competition, the proportion of handling fees gradually expanded, increasing by 10pct to 24% within three years from 2016 to 2018.Although the comprehensive expense ratio has increased, the compensation ratio has steadily decreased, driving the recovery of underwriting profits. The business structure is better (82% of the household car business of compulsory motor vehicle insurance accounts for), financial technology helps (AI underwriting, loss determination, anti-fraud technology), and the auto insurance compensation rate has always been at a low level in the industry (53.9%). As of 2018, auto insurance underwriting profit was 4.4 billion yuan (YoY+8%), and the underwriting profit rate was as high as 2.6%, far higher than the industry's 0.14%.
Ping An non-auto insurance cares about the help of health insurance, liability insurance and guarantee insurance to achieve rapid growth. As of 19H, non-auto insurance premiums were 38.1 billion yuan (YoY+12%), and the growth rate of 19H was lower than that of the industry (expected to be 30%+), mainly due to negative growth in guarantee insurance. Overall, the CAGR of non-auto insurance premiums from 2007 to 2018 was more than 20%, better than the industry (14%); currently accounts for about 29% of property insurance premiums.
ROE= (underwriting profit + investment income)/net assets
=underwriting profit margin*earned premium/net assets + investment return*Investment assets/net assets
=(1-comprehensive cost rate)*underwriting leverage+investment rate*Investment leverage
In recent years, the market competition pattern has been stable. The market share of PICC, Ping An and Taiping Insurance is stable at around 33%, 23%, and 10%. There is little possibility of market structure reshaping in the short term. Premium income is likely to grow steadily, and the growth rate of earned premiums and total investment assets will decline. Therefore, the growth of underwriting leverage and investment leverage is relatively difficult. Therefore, the comprehensive cost rate is the key to affecting the ROE of property insurance business.Ping An Property Insurance has strong channel strength and pricing capabilities. Relying on AI damage determination and claims settlement, it can effectively control leakage and leaks, and the comprehensive compensation rate has been at a low level for a long time. In the future, with the continuous advancement of commercial vehicle fare reform, the expense rate will be reduced; insurance companies with advantages in compensation control will become more prominent. At the same time, the tax cut policy helps the effective tax rate to 20%, and Ping An Property Insurance ROE is expected to remain at 18%+.
5 Investment side: Stable and elastic, no interest rate loss risk
Due to the characteristics of insurance companies' liability operations and the need to match long-term liabilities, the allocation of large-scale assets of insurance companies is basically fixed income assets, and the proportion of equity assets is relatively stable. As of 19H, Ping An's total investment assets were nearly 3 trillion yuan, ① Fixed income assets accounted for 72% (VS AIA 83%), of which fixed deposits accounted for 7% and bonds accounted for 45% (VS AIA 78%); ② Among equity assets, stocks and equity funds accounted for 11% (VS AIA 12%), and long-term equity investment accounted for 3.5%. ③The total non-standard assets are 541.1 billion yuan, accounting for 16%, of which 15% are invested in debt plans and debt-based wealth management products, and 1% are invested in equity-based wealth management products. Compared with the end of 2018, the proportion of bond investment was -0.8pct, stocks and equity funds accounted for +1.1pct, and long-term equity investment accounted for +0.2pct. We infer that since 2018, the company has increased its long-term equity investment, which may be the first to launch IFRS9, and long-term equity investment can ensure the stability and flexibility of equity assets.
It is estimated that after IFRS9 is enabled, the proportion of assets measured at fair value in stock fund investments, which are included in the current profit and loss increase, increasing the volatility of the total investment return. Due to its large banking business, Ping An began to implement IFRS9 in 2018. Under IAS39, financial assets can be divided into HTM (assets held to maturity), FVTPL (assets measured at fair value and whose changes are included in current profit and loss), AFS (available for sale financial assets) and AR (loans and receivables), and most of stocks and funds are included in AFS. In 2018, Ping An launched the IFRS9 accounting standard. Under the new standard, AFS was cancelled, and financial assets were divided into AC (financial assets measured at amortized cost), FVTPL and FVOCI (assets measured at fair value and whose changes were calculated into other comprehensive income). The proportion of assets directly included in profit and loss increased, resulting in greater fluctuations in investment yield and profit: ① Among the total investment assets, the proportion of assets included in FVTPL in 2018 was 18.5% (+16.6pct), of which 11.2% (+9.9pct), 2.8% (+2.4pct), and 1.6% (+1.6pct). ② The proportion of FVTPL included in the investments of fixed income, stocks and equity funds increased significantly from 2%, 4%, and 0.2% to 14%, 30%, and 100%, respectively. Therefore, although the proportion of stock + equity funds in insurance companies generally remained at around 10% in 2018, Ping An's total investment return fluctuated even more: 3.7% under IFRS9 and 5.2% under IAS39, affecting the stability of the total investment return.
Long-term equity investment guarantees insurance companies to obtain long-term and stable returns, thereby reducing the impact of stock price fluctuations on investment returns under IFRS9 and reducing the volatility of the total investment return. At present, Ping An's long-term equity investment is measured using the equity method. The annual stock price change of the invested target does not affect the investment income. The investment income should be recognized according to the shareholding ratio, and the other comprehensive income of the invested unit should be recognized by the other comprehensive income of the invested unit, and the book value of the long-term equity investment should be adjusted. In 2018, the company increased its stake in China Fortune Land Development many times, with a shareholding ratio of 25%, making it the second largest shareholder. While achieving the matching of insurance funds with high-quality real estate, it reduces the fluctuations in the total investment return.
Ping An investment yield level is the best in the industry. As of 19H, the total investment return rate under Ping An IFRS9 was 5.5% (YoY+1.5pct), and the net investment return rate was 4.5% (YoY+0.3pct).Youbang's total investment return rate is 7.2% (YoY+3.6pct).
AIA's total investment return is higher than Ping An and other mainland Chinese insurance companies most of the time, mainly due to the elasticity of equity assets.
extends the duration of assets and effectively reduces the risk of duration mismatch. On the one hand, since insurance companies operate liabilities, and the liabilities are mainly long-term liabilities and fixed income on the asset side, if the asset term is shorter than the liabilities term, the asset-liability duration gap is large, which makes insurance companies face the risk of reinvestment when they expire. If there is no suitable asset matching, insurance companies will face liquidity risks (no assets fulfill corresponding obligations). On the other hand, insurance companies have a long liability maturity and are highly sensitive to interest rates; while short-term investments on the asset side are less sensitive to interest rates, and the value of assets and liabilities fluctuates with market interest rates fluctuating. When the market interest rate falls, the provision of insurance contract reserves increases, while the asset value decreases at the same time. If the insurance company's assets value and liabilities value, it will generate a risk of interest rate difference (re-allocated asset return cannot cover future potential expenditures) and solvency risks. Therefore, insurance companies need to match assets and liabilities to achieve the matching of assets and liabilities in the maturity structure, quantity, and yield structure with the expected interest rate structure as much as possible, so as to reduce liquidity risk and solvency risks.
According to " Daily Economic News ", Ping An currently has a debt duration of 14.8 years, an asset duration of 8.2 years, and an asset duration gap of 6.6 years, which is smaller than its peers. As of 2018, based on the remaining term, ① Ping An time deposit has a duration of about 3 years, with a proportion of 1% due to more than 5 years, a proportion of 70% due to 1-5 years, and a proportion of 20% due to less than 1 year. ② The duration of the bond is about 6 years, with maturity of more than 5 years accounting for 54%, maturity of 1-5 years accounting for 32%, and maturity of less than 1 year accounting for 14%. According to AIA's annual report, financial assets under one year, 1-5 years, 5-10 years and more than 10 years account for 5%, 10%, 16%, and 45% respectively. After weighting, AIA's duration is about 10 years. Insurance contract liabilities account for 2%, 9%, 10% and 79% respectively, with a liability duration of about 15 years, and the estimated asset-liability duration gap is less than 5 years. listed insurance companies seized the high interest rates of agreement deposits and long-term bonds in January and April 2019, and allocated fixed deposits, long-term treasury bonds/local bonds and suitable non-standard assets. The pressure on allocation of new assets and maturing assets this year was basically digested.
From the perspective of liquidity risks, Ping An needs to expire and re-allocate fixed income assets in 2018 account for about 15%, while AIA only has 3%.Compared with AIA, Ping An’s asset-liability duration gap and maturing asset re-allocation pressure is greater, mainly because AIA’s major asset allocation adheres to the principle of matching investment with policy currency, such as Hong Kong, Singapore and mainland China’s premium income from insurance purchases in Hong Kong can actually be allocated overseas assets. Although long-term bond yields in developed markets are relatively low, there are many options for configurable long-term assets. Therefore, the proportion of fixed income assets with a duration of more than 10 years is as high as 85%, while the proportion of fixed income assets with a duration of more than 5 years in mainland China is only about 50%, resulting in the risk of mismatch of asset duration of Chinese insurance companies being higher than that of AIA.
Considering that long-term interest rates may fluctuate downward (or less than 3%) and the equity market remains volatile under the increasing external uncertainty, we assume that 20% of non-standard assets and bonds of listed insurance companies matured in 2018, and at the same time, assuming that new bond yields are 2.8%, non-standard yields are 7.1%, and stock + stock fund yields are 5%. , Ping An's total investment yield in 2019 is higher than 5%, which is higher than the current liability capital cost (less than 3%), and interest spread benefits can still be obtained.
Division valuation: All businesses are the best, comprehensive finance should have added value
Ping An comprehensive financial model has developed rapidly, and cross-selling has grown rapidly: From traditional finance to the establishment of five major ecosystems, customer migration has switched from the early core finance to the one-way output of technology business to two-way exchange, gradually realizing the empowerment of finance by ecology and technology. At the same time, on the basis of strict risk control, the Group realizes the linkage between liability and investment through guarantee insurance for other businesses by property insurance, insurance funds in trust/broker asset management/bank wealth management, etc. Therefore, Ping An's comprehensive financial business model should enjoy added value and thicken valuation rather than drag down.
's current stock price corresponds to PEVs from 2019 to 2021 1.4, 1.2 and 1.0 times respectively. Ping An Life Insurance accounts for 60% of operating profits, and the market still uses the EV valuation system to provide valuations. Therefore, multiple businesses such as property insurance, banking, securities, trusts, and financial technology are only given a valuation of 1 times. Referring to the average industry valuation level, Ping An will be valued in segments: It is expected that the company's total market value in 2019 will be approximately 1.78-2.06 trillion yuan, and the company's current market value is 1.6 trillion yuan, which is still undervalued, and it maintains a strong recommendation rating.
(Report source: Founder Securities)
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At present, most of the main businesses in the ecosystem are in the early stages of incubation and development, and still need the support of traditional financial services. With the continuous incubation of various businesses, is expected to become an important source of incremental profits and a customer traffic diversion port for traditional financial services. By increasing investment in technology and continuously strengthening "technology empowers finance and technology empowers the ecology", ultimately realizing "ecological empowers finance" through flow monetization.is similar to peers. In the early days of its establishment, Ping An mainly operates property insurance business. However, property insurance demand is relatively rigid and the business scale is limited. In 1994, the company quickly started a life insurance business with a potential market demand. It also learned from AIA to take the lead in introducing personal marketing among domestic insurance companies and quickly build a modern insurance business platform, laying a first-mover advantage for the rapid development of personal insurance channels. After the completion of the property and life insurance division in 2002, the company established Ping An elderly care, Ping An Health Insurance and Ping An Asset Management (2004-2005), with the accelerated professional operation process and rapid development of insurance business.
to form a comprehensive financial system with insurance and banking as the core. comprehensive financial layout began with Ping An Trust (established in 1995) and Ping An Securities (1996). In 2003, the company acquired 50% of the equity of Fujian Asian Bank through an equity transfer agreement, and the banking business officially began; in 2006, it acquired Shenzhen Commercial Bank to expand its commercial banking business resources; after two major asset restructurings in 2010 and 2011, Shenzhen Development Bank absorbed and merged the former Ping An Bank, and renamed Ping An Bank, operating nationwide banking business. At this point, a comprehensive financial system with insurance and banking as the core has basically been formed, laying a strong foundation for customer migration and transformation, cross-selling and steady growth of value, and the synergistic benefits have been continuously enhanced: in 2010, the Group achieved new premium of 10.5 billion yuan through cross-selling, which reached 51.5 billion yuan in 2018, with a CAGR of 23%; 19H has reached another level to 28.3 billion yuan (YoY+15%), and cross-selling is expected to continue to contribute new orders in the future.
Ping An began to deploy comprehensive financial business as early as 1995, and created the earliest online financial product sales website PA18 in 2000. Internet genes and securities, trusts, asset management, banking and other businesses have gradually developed and matured. The cross-penetration of customers in various product lines has been continuously improved, and the number of average customer contracts has been continuously increased. Therefore, we cannot judge the development of the group based on insurance alone, but should start from the perspective of comprehensive finance to find the driving factors of operating profits.
As of 19H, the group's operating profit was 73.5 billion yuan (YoY+24%), of which the institutional business operating profit was 6.9 billion yuan (YoY-23%), accounting for 9% of the group's operating profit. Group insurance, bank-to-public, trust and brokerage firms’ institutional clients have limited long-term growth; among the five major ecosystems, major institutional businesses such as Ping An City Technology, Ping An Smart City , and Medical Insurance Technology will become new additions to the development of the institutional business and are expected to help the risk control of personal business.
The profit of personal business mainly depends on the incremental customer volume and average customer profit. As of 19H, the operating profit of personal business was 66.6 billion yuan (YoY+32%), accounting for 91%, which is the main source of operating profit. After splitting, we found that the increase in customer increments and average customer profits directly determine the growth rate of personal business operating profits. Specifically:
(1) In the early stage of the expansion of new business, average customer profits are certain, and the increment of customers directly determines the increment of profits. The five major ecosystems will become the main source of individual customer increments. ①In recent years, among the new customers, the proportion of traditional financial individual customers has continued to decline, and the proportion of individual customers in the five major ecosystems has continued to increase, with 66% and 34% respectively in 19H, and the proportion of individual customers in the ecosystem has reached +24pct in 2015. 19H Group added 20.09 million new individual customers (YoY-22%), and the growth rate of new customers in the ecosystem and traditional channels declined. ② The group's traditional financial business is relatively mature, and the growth of traditional financial customers is limited; at the same time, among the five major ecosystems, Lufax, Autohome, and Ping An Good Doctor are the main sources of personal business. Among them, Lufax and Autohome have achieved profitability, and the traffic growth rate may slow down in the future; Ping An Good Doctor is still in the later stage of traffic accumulation and is basically close to the break-even point.Therefore, the role of traditional business customers in driving the growth of ecosystem users will be limited, and in the future, the transformation of users in ecosystems into customers will become the main growth point for individual customers.
(2) In the long run, the increase in customer volume is limited, and increasing average customer profits is the main way for personal business operations to continue and steadily grow profits. average customer operating profit depends on the profitability of the product and the average customer contract quantity. The high-value life insurance business, retail business with continuous increase in profitability and financial technology business have helped the average customer operating profit to continue to increase. As of 19H, the group's average customer operating profit was 340 yuan (YoY+21%).
①Lufax mainly engages in three businesses: wealth management, personal lending and government finance. In terms of its customer migration path: In 2015, a total of 300,000 Lufax users were converted into core financial customers (3, 5, 180, 40,000 people in life insurance, property insurance, banking, and securities respectively), while the conversion of core financial customers to Lufax users was as high as 4.19 million (105, 79, 210, and 250,000 customers in life insurance, property insurance, banking, and securities business customers were respectively). Although has limited conversion to core financial customers, its personal lending business is deeply intertwined with property insurance business and continues to contribute profits.
As of 19H, the loan balance of Lufax's personal lending business was 407.9 billion yuan (YoY+30%), which is Lufax's main source of profit (it is expected to contribute 50% of the profit), and it is also a larger risk point. In order to prevent credit risks, all borrowers forcefully purchase guarantee insurance , and the main partner is Ping An Property Insurance. 19H guaranteed insurance premium is 15.3 billion yuan (YoY-6%); Lufax and Ping An have outstanding risk control capabilities and good business quality, with a comprehensive cost rate of only 93.2% (YoY+6pct), and still achieve underwriting profit of 800 million yuan (YoY-20%), with a slight decline in business quality, but the company's timely reduction in scale (or it may be a cessation of some high-risk businesses), which will help continue to achieve underwriting profits.
At present, its P2P platform Lufax is actively responding to the "three reductions" requirements for supervision and will gradually withdraw from P2P business, or transform it into an online micro-loan and consumer finance company encouraged by supervision. As of the end of June 2019, the balance of P2P business loans was 98.4 billion yuan (only 24% of Lufax's 407.8 billion AUM), the overdue rate of more than 30 days was 2.15% (about 1/3 of other P2P platforms), and the conservative estimate is 4%~5%.Ping An holds 41% of the equity of Lufax Holdings. After deducting bad debts, the net profit of 's P2P business in the first half of the year was approximately 3.9 to 4.8 billion yuan, which will contribute 1.6 to 2 billion yuan of the group's net profit, with an impact of less than 2%. Under the long-term equity investment calculated by the equity method, Lufax 19H's net amount at the end of the period was 25.6 billion yuan, which actually contributed 10.5 billion yuan of the group's net assets; has little impact on the group's net assets of 764 billion yuan and 1.1 trillion yuan of EV. At the same time, and this adjustment, the existing business will not be affected, and the actual profit and EV impact should be calculated.
②AutoHome uses big data to empower merchants and increase sales through in-depth industry connections; C-end realizes traffic expansion and enhances customer stickiness by covering the entire life cycle of car selection, car viewing, and car use. Based on car purchase and other scenarios, it directly drives the consumer finance business of banks and Lufax (car business loans, consumer loans, etc.); and realizes momentum transformation through precise marketing, indirectly drives a great growth in auto insurance, guarantee insurance, etc. 19H has contributed a total of 11.2 billion yuan in financial loans and insurance transactions, and is expected to achieve further growth throughout the year (at 15.8 billion yuan at the end of last year).
But unlike Alibaba and Tencent, which have basic consumption and basic social scenarios, the audiences of Ping An’s five major ecosystems are based on specific and single scenarios. Therefore, the conversion rate of household is likely to be relatively low and the customer stickiness is relatively limited. However, after the user conversion is successful, the comprehensive financial operation powered by technology will make the customer experience significantly better than other financial platforms. At the same time, the risk control capabilities of the main business of comprehensive finance are relatively high, and process optimization may be more prominent. The richness of products and the professionalism of marketing will jointly help Ping An to quickly grasp customers' financial needs, thereby improving customer stickiness and average customer contract count, and driving operating profit growth.
Natural advantages of governance genes: private foundation + equity dispersion = market-oriented operation
The company's equity is scattered, and foreign capital, state-owned, private, and the public jointly hold shares. As of the end of 2018, the major shareholders holding more than 5% of the shares were: Bufeng Group (9.19%), Securities Finance + Huijin (5.64%, 2.99%/2.65%), and Shenzhen Investment Control (5.27%) under the Shenzhen State-owned Assets Supervision and Administration Commission. The company's equity is scattered, clear and balanced, there is no controlling shareholder, nor an actual controller, the power distribution is relatively even, and there is a check and balance mechanism among shareholders, giving management more room to exert subjective initiative.
Core leadership is stable and the management system is efficient. Most of my country's large financial enterprises are central enterprises and state-owned enterprises. The term of office of the chairman is three years and can be re-elected, but the term of office of the chairman is generally less than six years (up to two terms), and there is a hidden danger of frequent replacement of strategic decisions. Ping An’s management team with Ma Mingzhe as the core has been in office for more than 20 years. It has grown together with the group and is well aware of various businesses. Its strategic decisions are targeted and sustainable. At the same time, the strategic decisions of the core management can be efficiently transmitted, making the safe management system more efficient and the mechanism more flexible.
Continuously improves the incentive and constraint mechanisms to form a community of long-term interests with employees. In February 2015, Ping An established a core personnel shareholding plan, which lasts for 6 years. As of 2019, five phases have been implemented, benefiting thousands of employees, truly realizing the sharing of interests and risks of shareholders, companies and employees. At present, the main listed peers have not yet launched equity incentive plans, and Ping An’s employees are deeply bound to the company’s interests, which will help accelerate the transformation of traditional financial businesses and the implementation of technology, ecology and other businesses.
Company established a long-term service plan in December 2018. The plan is once a year, with the upper limit of the long-term service plan for the current year = net profit for the current year × N1. Participants are core talents that play an important role in the company's overall performance and long-term development. On May 14, 2019, the first period of long-term service plan shares repurchased, and a total of 54.29 million A shares were purchased, accounting for 0.297% of the company's total share capital, and the average transaction price was approximately RMB 79.10 per share.The employees participating in this long-term service plan mainly include: Ma Mingzhe, Sun Jianyi , Li Yuanxiang and Ren Huichuan , etc. Long-term service plan participants submit an application for ownership when they retire from the company, and finally obtain the ownership of the plan's rights after they are confirmed and the relevant taxes and fees are paid. It will also strengthen the long-term binding between company interests and employee interests, ensure that employees consciously promote the company's sustainable development and continuously create value for shareholders.
In October 2018, the board of directors reviewed and passed the "Repurchase of Company Shares and Related Authorization Plan", with the authorization amount of 10% of the total issuance share capital. The company plans to use 5-10 billion yuan of its own funds between 2019/4/29-2020/4/28, accounting for approximately 0.273%-0.546% of the total share capital. The current upper limit of the repurchase price is adjusted to 99.39 yuan per share. This repurchase began on June 19, 2019. As of now, a repurchase limit of 5 billion yuan has been reached. will be used in the company's employee stock ownership plan, including but not limited to the long-term service plan for the future year, demonstrating the company's confidence in its own development.
specially set up an executive committee to implement matrix management. As an investment holding company that develops comprehensive financial business, Ping An Group does not operate specific businesses and insists on separate operations and supervision. To this end, an executive committee is specially established at the operating level, and the group is responsible for the daily operation and management of the group during the recess of the shareholders' meeting and the board of directors. The members are composed of the CEO and the leaders of each subsidiary. The Executive Committee is the group's highest decision-making body, and is responsible to the board of directors. It has a professional decision-making management committee, a matrix management of subordinate professional companies, and makes collective decisions on major matters. This makes Ping An’s strategy formulation forward-looking and strategic execution efficient. In the 30 years of development, the pace has not lagged behind due to its huge scale. Instead, it has continuously incubated new growth points with traditional financial transformation, technology and ecology leading development.
upgrades the collective decision-making mechanism, and the joint CEO+matrix system promotes strategic transformation. In recent years, with the continuous advancement of the group's "financial + technology" and "financial + ecology" strategies, the comprehensive financial business model has gradually formed three main business lines: "personal business + company business + technology business". In 2018, in order to develop management and risk control of new business models, Ping An added three co-CEOs - Li Yuanxiang, Xie Yonglin, and Chen Xinying, on the basis of the executive responsibility system, to be in charge of personal business, company business and technology business respectively. The establishment of the co-CEO is conducive to the group's continuous practice of collective decision-making, division of responsibilities, and matrix management. On the basis of accelerating the integration of internal resources, improving collaborative efficiency, and strengthening risk control, it accelerates the promotion of the science and technology and ecological transformation strategy.
3 Life Insurance Business: Adhering to diversified and stable development, the anchor of stable valuation
2007 Ping An Life Insurance has developed rapidly since its listing of the A-share market in 2007. As of 19H, the total premium income of life insurance was 370 billion yuan (YoY+5%), and the CAGR from 2007 to 2018 was as high as 20%. The market share is 17%, ranking second in the market all year round.
Life insurance pre-tax operating profit = residual marginal amortization + net asset investment income + interest rate spread income + operational deviation and others. Since the remaining margin is set at the time of issuance of the policy and is accrued in order to not confirm the first daily profit, it is actually the present value of the policy's profit in the future year, the remaining marginal amortization is the main source of life insurance operating profit. Among Ping An Life Insurance's operating profits, the remaining marginal amortization sales account for about 90%. Long-term and stable residual marginal amortization helps life insurance profits grow steadily. As of 19H, Ping An Life Insurance's remaining marginal balance was 867.4 billion yuan (+10% from the end of the previous year), and the remaining marginal amortization was 35.8 billion yuan. Ping An uses the effective insurance amount as the residual marginal amortization carrier. In recent years, the overall amortization ratio has remained at 10%-11%. In the future, it may decline slightly with the narrowing of the marginal contribution of new businesses, but overall remains stable. 19H Life Insurance's pre-tax operating profit was RMB 54.9 billion (YoY+15%) and the remaining marginal amortization contribution accounted for 65% (YoY+3pct), which is the main source of driving force to boost the group's profit growth.
Short-term pressure does not hinder long-term development.During the good start of , Ping An Shou's main products were annuity insurance with a pricing rate of 3.5% and dividend insurance with a 2.5% dividend insurance with a , and the growth of new orders was slightly under pressure. The total new orders for 19H were 101.3 billion yuan (YoY-5%) and the new orders for personal business were 87.8 billion yuan (YoY-7%), but the decline in new orders has narrowed significantly compared with 18H. At present, 4.025% of the products will no longer be approved, and the agents of the public company adapt earlier. Sales pricing interest rate are only sold. Saving 3.5% savings insurance products will help the growth of new orders in the future better than peers
High-quality agents help individual insurance premiums maintain a high proportion throughout the year, and have an excellent term structure. insurances have always been the main channel of Ping An Life Insurance. The long-term emphasis on futures payment business has led to a high proportion of new orders for Ping An individual insurance during the period and a steady increase, helping the continuous growth of individual insurance renewal. Since the A-share listing, the proportion of individual insurance premiums in the total life insurance premiums has always remained at 80%+, and the proportion of individual insurance renewal has accounted for about 70% of the total renewal, and the proportion of individual insurance new orders in the total new orders has increased from 50%+ to 70%+. As of 19H, Ping An individual insurance premiums were 316.7 billion yuan (YoY+3%) and new policy premiums were 71.7 billion yuan (YoY-12%), of which 66.8 billion yuan (YoY-14%) were paid in the first-year premiums, accounting for 76% of the total new policies, which has formed a trend of driving the growth of total new policies with individual insurance payments.
agent has outstanding sales capabilities, and long-term, high-value product sales are smooth, helping individual insurance NBV continue to grow, NBVM remains high, and becoming the source of life insurance value . Personal insurance products have strong profitability and high NBVM; under the dual role of high-quality agents and brand premium capabilities, new personal insurance orders have increased steadily. Promoting individual insurance business to become the main source of Ping An Life Insurance’s value, and its share in life insurance NBV has remained at around 90% for a long time. As of 19H, Ping An Life Insurance NBV was 41.1 billion yuan (YoY+5%) and the personal insurance NBV was 36.2 billion yuan (YoY+3%), accounting for 88% of the total NBV; the personal insurance NBVM was 59% (YoY+10pct), which was more than 15pct higher than the total NBVM, but it was still 10pct lower than the AIA Personal Insurance NBVM (70%). At present, the long-term insurance NBVM has reached a high level. In the future, it is expected that the personal insurance NBVM will be further improved with the optimization of the savings insurance structure.
In August 2000, Ping An Life Insurance took the lead in launching the dividend-type savings insurance "Millennium Red" at the bank counter, thus opening the huge screen of bank insurance. After bank branches relaxed the agency restrictions on insurance companies in 2003, bank insurance account managers were quickly introduced in order to improve the term structure and profit margin of bank insurance business. Although it was the first to open the bank insurance channel and has a bank subsidiary, Ping An’s dependence on bank insurance has always been low: in 2009, Ping An’s bank insurance channel’s new orders and total premiums accounted for only 42% and 21%, far lower than the level of 70%+ of peers . At that time, the life insurance business was poor (mainly lump sum payment) and the channel was single (high proportion of bank insurance), which led to large fluctuations in premium growth, which was very likely to cause problems such as solvency, surrender, and cash flow. Therefore, from November 2010 to 2014, the former China Insurance Regulatory Commission issued several notices to increase sales management of bank insurance channels. Ping An responded quickly. From
Improved term structure helps the bank insurance NBVM improve. Although the new bank insurance policy in reached 27.1 billion yuan at its highest in 2009, NBV contribution has always been low, mainly because most of the products sold are high current prices and lump-sum payments, and NBVM is lower. For a long time, Ping An Bank Insurance NBVM has less than 5%, and its large changes mainly occur when the proportion of payment in the first year increases. In 2017, the proportion of first-year payments in the new bank insurance policy jumped from about 30% to 60%; 19H further increased to 86%, and the improvement of the term structure helped the bank insurance NBVM to rise sharply to 10% in 2017 and 19% in 19H respectively. However, compared with AIA, NBVM is still at a low level (Ping An 19% vs AIA 50%) and NBV accounts for a relatively low proportion (Ping An 2% vs AIA 30%). We infer that it is mainly due to AIA's better business structure.
High-quality agents are conducive to developing mid and high-end customers and have more sales advantages in central urban areas. Ping An is mostly mid-to-high-end customers, with 72% of customers with annual revenue of more than 100,000 in 19H, and the average customer contract number of mid-to-high-end customers is higher (ranging from 2-11 shares). With the same product profitability, the average customer profit will be higher, helping Ping An Life Insurance to establish a market competitive advantage in economically developed regions. Guangdong, Shandong, Jiangsu, Beijing and Zhejiang are the five major regions with the highest contribution to Ping An Life Insurance. In 2018, the total contribution was 41% of the total premium. Among them, the market share of Beijing, Shanghai and Guangdong was 24%, 19%, and 23%, respectively, which was significantly higher than that of peers.
Ping An Life Insurance product line is rich, savings insurance focuses on the "xx life" series of dividend insurance, and protection insurance is the main product of "Ping An Fu". Ping An Life Insurance provides customers with various types of products including critical illness, accident, medical insurance, lifetime life insurance and savings insurance. Each type of insurance covers a variety of product plans - Xiyue Life, Jinrui Life, Jinxi Life and other series of main savings insurance products, providing different insurance periods and annuity payment structures; at the same time, Ping An Fu, Fu Full Score, and other various insurance insurances provide multiple choices for disease, accident, and death protection. The rich product line directly brings multiple possibilities of customer service and fully meets the different needs of customers. In July this year, Ping An launched Big and Small Fortune Stars, reducing the liability for compensation for minor illnesses, and reducing the average premium of 1,000-2,000 yuan, opening up the product gradient and further segmenting the customer base, which is conducive to taking the lead in seizing some groups with guaranteed needs but limited income and reserve customer sources.
my country's personal insurance industry is still in the late stage of development, and consumption habits and product pre-order interest rates have led to the rapid growth of short-term savings insurance in the dividend period. After a brief development in the 1990s, the central bank began to cut interest rates seven times in 1996, and the one-year deposit rate dropped sharply from the high point in 1993 (10.98%) to 2.25% in 1999. The former China Insurance Regulatory Commission avoided the emergence of a new round of potential interest rate spread losses and lowered the predetermined interest rate of life insurance products to 2.5%. In order to improve product competitiveness, new life insurance products with wealth management attributes such as investment-linked insurance, dividend insurance, and universal insurance came into being, and have continued to occupy half of life insurance for many years since then.
From the perspective of total premium, 1) dividend insurance and universal insurance account for 50%+, and in recent years, dividend insurance is mainly mainly used. ①In 2010, among the top five products of Ping An Life Insurance, universal insurance occupied 4 seats, and has disappeared since then. Mainly, since 2011, the transformation of bank insurance channels has begun. The proportion of universal insurance hit a high point in 2009 (43%) and then fell to 19% in 2018. Except for the brief rebound after the liberalization of universal insurance reservation interest rates in 2015 (30%), the proportion of universal insurance has always remained at around 20% in recent years, and it has operated steadily. ② The proportion of dividend insurance continues to remain around 40%, which is the main type of life insurance. Since 2011, among the top five products, dividend insurance has dominated the market, accounting for 4-5 seats. Ping An Fen Red Insurance is mostly delivered products on 3/5/10 years, with a predetermined interest rate of 2.5%, both items are high, the debt cost is low, and the insurance period is long (15 years or lifetime). Although the value rate is limited (expected to be about 20%), the low debt cost helps reduce the company's potential interest rate spread loss risk.
For a long time, Ping An has adhered to the diversified and balanced development strategy, and has not single development insurance due to high value (the proportion of long-term protection products is lower than that of peers, 50% of Pacific Insurance and 60% of Xinhua in 2018), nor has it developed too much short-term payment savings insurance due to rapid expansion of scale (bank insurance transformation is decisive, lump payment has dropped by 20 billion yuan in two years, and has not caught up with the universal risk trend). Among the first-year premiums of , Ping An long-term insurance type 2, short-term savings saving type 3, and long-term savings products have maintained the first-year premiums of around 40%, 30%-35% and 6%, respectively. In 2018, NBVM was 95%, 55%, and 18%, respectively, but the long-term insurance NBVM was significantly higher than the short-term savings saving type, which directly led to a widening gap in the proportion of NBV: In 2018, NBVs were 490, 76%, and 5.2 billion yuan, respectively, accounting for 68%, 10%, and 7%. , and AIA's main products are high-value long-term insurance (serious illness + lifelong life) and long-term savings insurance (dividend + lifelong lifelong life), with NBV accounting for about 40%-45% and 35%-40% respectively. The better product structure makes AIA's overall NBVM (60%) higher than Ping An (44%). At present, Ping An short-term storage products have been fully developed and NBVM is not easy to improve. NBVM for long-term insurance and long-term savings insurance are at a high level. Therefore, the future improvement of NBVM mainly depends on the optimization of the savings insurance structure .As of 19H, Ping An’s new long-term savings insurance accounted for 6% (YoY+2pct), and the new short-term savings insurance accounted for 30% (YoY-7pct). The optimization of the savings insurance term structure helped NBVM improve, and the 19H savings insurance NBV accounted for 24% (YoY+5pct).
From the industry perspective, long-term savings insurance and long-term protection insurance are both absent, and short-term savings insurance demand is still there. Ping An’s diversified and balanced development strategy meets the current requirements. At the same time, since most consumers in mainland China still need to cultivate their insurance awareness, limited purchasing power, and the market still needs to be developed, Ping An cannot directly follow the single model of AIA and Prudential "long-term saving insurance + long-term protection insurance". It still needs to continue to use long-term value products such as "long-term saving insurance + long-term protection insurance" and short-term customer acquisition products such as "short-term saving insurance + short-term protection insurance (such as medical insurance, accident insurance)" as the supplement, so as to maintain the growth of business value, and then continuously develop customers and increase average customer profits.
From the perspective of insurance companies' absolute valuation, considering the future growth of new businesses, the long-term assessed value of insurance companies AV=included value EV+new business multiple N*new business value NBV, the new business multiple is the growth space of the future NBV. Without considering future growth (that is, N=0), AV=EV=effective business value VIF+adjusted net assets ABV.
2018, 4 AIA EV was US$54.5 billion, NBV was US$4 billion, Ping An Life Insurance EV was RMB613.2 billion, and NBV was RMB72.3 billion; as of September 6, 2019, the market value of AIA and Ping An Life was US$123.5 billion (converted at the exchange rate on the same day) and 968.5 billion (because the operating profit and EV of life insurance business accounted for 60%+, and the market value of life insurance was calculated based on 60% of the total market value of China Ping An A shares), and the new business multiples corresponding to AIA and Ping An Life were 17x and 5x respectively.
The insurance industry in mainland China is still in the late stage of development, and Ping An’s annualized new order growth rate is higher. Ping An Life Insurance’s new order growth is likely to be better than AIA. Even if the growth rate shifts in the future, the new business multiple will be at least 10. On the one hand, except for the industry adjustment period, Ping An Life Insurance's annualized new single-year compound growth rate is significantly higher than that of AIA. As of 2018, Ping An and AIA’s new annualized orders were 144.7 billion yuan and 6.8 billion US dollars respectively, and the CAGR since 2008 was 21% and 11% respectively. On the other hand, as of 2018, my country's life insurance depth was 2.7% and its life insurance density was US$225 per person, far lower than that of the United States (2.8%, US$1,674). Consumers' demand for protection, pension, etc. is still relatively large, so the potential market space for insurance in mainland China is much greater than that of Hong Kong, China. According to the Hong Kong Insurance Regulatory Bureau of China, the insurance purchase scale of mainland Chinese visitors from 2016 to 2018 was HK$727, 508 and 47.6 billion, respectively, and was HK$12.8 billion in 19Q1, and is expected to be approximately HK$50 billion for the whole year. At the same time, AIA's business accounts for less than 20% of AIA's annualized new order fees. Even if AIA and mainland Chinese consumers go to Hong Kong to purchase insurance, AIA can enjoy the dividends of the mainland Chinese industry, this part of the market is relatively limited. Ping An Life Insurance has been deeply involved in the mainland Chinese market, with strong agent strength and sufficient channels, which will make it easier to seize the industry dividends and achieve continuous growth in new policies and premiums. Assuming that Ping An Life Insurance will only have 30 years of new order inflows and the new order structure is consistent with the current situation, and and the CAGR drops to 10% in the next 30 years (AIA's current level), its new business multiple should be basically the same as AIA (that is, N=18, at this time, Ping An Life Insurance's market value should be 1.9 trillion). For the sake of caution, assuming that Ping An Life's new order will be only 6% in the next 30 years, the new business multiple will be at least 6, which corresponds to Ping An Life's market value of 1.05 trillion, which has 10% growth space compared with the current market value (0.96 trillion).
Ping An’s absolute valuation and relative valuation are both discounted than AIA. From the perspective of relative valuation, Ping An Life Insurance PEV is about 1x-1.5x, while AIA PEV is about 1.5x-2x.From the perspective of absolute valuation, under the prudent assumption, Ping An Life Insurance's new business multiple is 6. Based on the current market value, the EV in 2018 was only 534.7 billion yuan (far lower than the disclosed value of 613.2 billion yuan). And ABV itself is cautious enough, so the discount mainly comes from VIF. When N=6, the VIF is only 321.8 billion yuan, which is only 80% of the disclosed value.
Except for the industry's adjustment period from 2011 to 2013 and 2018, the growth rate of Ping An Life Insurance's new orders and NBV has always been around 10pct higher than that of AIA. From the perspective of EV, due to the large scale of existing business, NBV accounts for only about 10% of EVs at the beginning of the period, and its impact on EVs is limited. Therefore, the growth rate of Ping An EV is not greatly affected by industry adjustments, and the growth rate of Ping An ROEV and EV has been higher than that of AIA 10pct for a long time. It is estimated that when the business structure of 19H2 is certain and NBVM is certain, even if the new single-negative growth is 6%, positive NBV growth can be achieved; at the same time, long-term interest rates stabilize, the diversification of the investment structure resonates with the certainty growth of NBV, and EV will achieve stable growth. It is expected that Ping An Life Insurance's NBV growth rate in 2019 will be around 9%. Under the pessimistic assumption (the investment return rate is higher than the benchmark -50bps), the EV growth rate in 2019 will be about 15%; under the neutral assumption (the benchmark investment return rate is realized), the EV growth rate in 2019 will be about 19%. Therefore, from the perspective of relative valuation, Ping An Life Insurance business should not have discounts compared to AIA. Under the neutral assumption of , Ping An Life Insurance is given 1.9 times PEV, which corresponds to the market value of life insurance is 1.17 trillion, which has 20% room for growth compared with the current market value (0.97 trillion). The discount of
VIF is mainly due to market doubts about actuarial assumptions. Ping An actuarial assumptions are cautious, and both operations and investment have a positive contribution to EV, and long-term equilibrium is assumed, and its VIF should not be discounted. After comparing actuarial assumptions such as risk discount rate, mortality rate, critical illness incidence rate, return on investment, and retirement rate, we found that except for the return on investment, Ping An's actuarial assumptions are relatively cautious. From the perspective of the investment return rate assumption, AIA adjusts with the market, the volatility of the deviation rate is relatively small, and the average annual investment deviation rate is about 0.5%. However, Ping An’s investment return rate is basically fixed at 5%-5.5%, but its overall investment capacity is outstanding compared with its mainland Chinese peers. The investment deviation generally contributes positively to EV, with an average investment deviation rate of 1.8%. From the perspective of operational deviation, AIA and Ping An have high control efficiency; at the same time, actuarial assumptions are prudent, making indicators such as actual dead fee difference and surrender rate better than the assumption in the long run. Therefore, the long-term positive operational deviation can be achieved, with the average operating deviation rate being 0.6%, which is significantly higher than that of peers.
AIA focuses on long-term insurance and long-term savings insurance. At the same time, its investment return rate assumptions adjust in time with market changes, so its sensitivity to investment return rate is significantly lower than that of mainland Chinese insurance companies. It is more sensitive to mortality and morbidity. With the gradual adjustment of the product structure, Ping An has been selling products in recent years with dividend insurance and long-term insurance with low debt costs. 70% of the investment sensitivity of dividend insurance is transferred to the insured, and the insurance is considered to deteriorate serious diseases. Therefore, Ping An NBV and EV have decreased sensitivity to investment and increased sensitivity to morbidity.
Assuming that there is an extremely pessimistic situation of stocks and bonds and economic downturn, Ping An’s investment return rate is 100bps lower than the assumption, and the mortality and incidence rate increase by 10%. When extreme pessimism occurs, the return on assets required by shareholders will usually decrease. Assuming that insurance companies simultaneously reduce the risk discount rate by 50bps, then Ping An Life Insurance’s EV in 2018 is 516.5 billion yuan. In recent years, in Ping An Life Insurance NBV, the proportion of dead expenses and interest rates has remained at 66% and 34% respectively, and long-term insurance products are 75% and 25% respectively. The high level of the proportion of dead expenses and differences will keep the investment sensitivity stable. Even if the risk discount rate assumption is not adjusted, Ping An Life Insurance's EV in 2018 will still be 500.9 billion yuan. At this time, the 1.9 times PEV corresponds to the market value of life insurance of 0.95 trillion yuan, which is basically consistent with the current market value (0.97 trillion yuan). Currently, the liability cost of listed insurance companies is less than 3%, and even under extremely pessimistic situations, there is a high probability that interest rate spread will not be generated; at the same time, in terms of long-term development, insurance companies can generally achieve a total investment return of of or more, so Ping An Life should at least maintain its current valuation level.
4 Property and Casualty Insurance Business: Maintain rapid catch-up under underwriting profits
insurance types are fully set, premiums grow rapidly, and all insurance types achieve continuous profits. As of 19H, Ping An Property Insurance's premium income was 130.5 billion yuan (YoY+10%), with an premium CAGR of more than 25% from 2007 to 2018; the market share was as high as 21% (11pct increase from 2007), ranking second in the market. Continuously achieve underwriting profits, and the comprehensive cost rate is better than that of peers 2-3pct in the long run. However, the proportion of operating profit attributable to the parent dropped from 14% in 2017 to 11%, mainly due to the decline in the growth rate of underwriting profits.
Due to negative growth in new car sales and slowing down in auto insurance growth, the growth rate of Ping An Property Insurance in 19H slowed down to 9%, compared with the end of last year -6pct, but still higher than the peers 2-4pct, and higher than the industry average growth rate of 4-5pct; at the same time, the market share has increased from 8% in 2000 to 20% in 19H, and the gap with PICC Property Insurance has continued to narrow. Specifically: ① Before 2008, the market share was relatively stable, basically maintaining around 10% . ② From 2008 to 2011, the market share quickly rose from 11% to 17%, mainly benefiting from the launch of auto insurance and electric sales channels. In 2007, Ping An launched a telephone marketing channel and quickly promoted it nationwide. While making insurance convenient and fast, private car owners can enjoy up to 15% premium discount. Ping An Property Insurance quickly seizes market share with the help of electric sales channels. ③ Since 2012, we have continuously optimized claims services and vigorously developed non-auto insurance businesses. The market share has steadily increased to 20%, and the gap with PICC Property Insurance has narrowed to 13%.
benefited from the advantages of technology and continued to achieve underwriting profits. As of 19H, Ping An Property Insurance's comprehensive compensation rate and expense ratio were 59% (YoY+2pct) and 37% (YoY-1pct) respectively. The "incorporation of reporting and business" was strict, and the expense ratio dropped significantly; technology helped the compensation rate remained relatively stable and helped underwriting profits. With excellent pricing, risk control and loss determination capabilities, with the increase in technology, Ping An Property Insurance continues to achieve underwriting profits except from 2006 to 2008. All three years are special: ① Auto insurance developed rapidly in 2006, but the business quality declined, causing property insurance to suffer underwriting losses. ② In 2007, the market competition was fierce. The company increased its investment in high-quality businesses to reduce the compensation rate, but the expense rate also increased in the same proportion, and the comprehensive cost rate was basically stable at 102%. In 2008, two major natural disasters led to an increase in compensation expenditure; at the same time, the basic rate of compulsory motor vehicle insurance was lowered, and under the influence of the two phases, the compensation rate directly increased (the compensation for compulsory motor vehicle insurance cases in 2008 increased by 19% year-on-year), resulting in a comprehensive cost rate of up to 104%, and underwriting losses for three consecutive years. In recent years, with the help of AI, the calculation of losses is more accurate and the claims are more efficient. The increase in the
Under the new tax reduction policy, the suppression effect of excess income tax on net profit will be lifted, and ROE will be increased. According to brokerage China, the comprehensive cost rate of the property insurance industry in 2018 was 100.13%, and the underwriting profit for eight consecutive years came to an abrupt end, with an underwriting loss of 1.4 billion yuan. However, Ping An Property Insurance benefited from the group's technological advantages, accurately qualifying losses and quickly settled claims, reducing insurance fraud and controlling claims, and promoting Ping An Property Insurance's underwriting profit of 8.5 billion yuan (YoY+19%) and pre-tax profit of 19.5 billion yuan (YoY+3%) in 2018. Net profit was only RMB 12.3 billion (YoY-8%), mainly due to the increase in income tax expenses caused by the increase in handling fees and business growth. In 2018, the handling fees for property insurance business were 49.3 billion yuan (YoY+27%), accounting for 20% of premiums (YoY+2pct). Of which 5% cannot be paid before tax, resulting in a significant increase of income tax by 31% to 7.2 billion yuan, and the income tax rate increased by 8pct year-on-year to 37%, reducing net profit. At the end of May 2019, the Ministry of Finance issued a document that the pre-tax deduction ratio of handling fees and commission expenses of life insurance and property insurance companies increased from 10% and 15% to 18%, and the excess part was allowed to be carried forward for subsequent annual deductions. After the increase in the deduction ratio of , it will greatly alleviate the tax burden pressure of insurance companies, thereby releasing net profits and supporting diversified operations.
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1 From core finance to technological empowerment, the ecosystem strategy leads the development
1988-2018 For thirty years, Ping An of China has always taken insurance as the core and has continuously improved its comprehensive financial and technological layout. From adhering to the "professional and value" of insurance in the early stage to focusing on the balanced development of the three major businesses of "insurance, banking, and investment" in the growth stage, to "improving the comprehensive financial layout", and then to the "financial + technology" at the current stage, the company has made great progress with the support of its forward-looking development strategy.
Under the low debt cost and balanced development strategy of the main insurance business, the anti-cyclical attributes are stronger and the investment value is highlighted. Ping An's early stock price performance was only in the middle of the industry and did not reflect a significant valuation premium. The company has adhered to a balanced development strategy for a long time, and the continuous optimization of the insurance business structure and the continuous improvement of the value rate have made its performance better than its peers. Excluding the highs of secondary new stocks in the first year after listing and the historical bottom of the 2008 financial crisis, China Ping An's stock price has increased by 6 times since 2009, which is much higher than its peers. In the past two years, the valuation has also been significantly restored. Especially since 2018, under multiple pressures such as ① Structural adjustment of the personal insurance industry and new orders under pressure; ② Long-term interest rates have fallen and stock market fluctuations; ③ Commercial vehicle fares have deepened, and the comprehensive cost rate remains high; ④ Under multiple pressures such as complex external environment, Ping An has low debt costs, high agent quality and business quality, and its performance is more stable than its peers in countercyclical terms, and its valuation premium is significant. On the other hand, the overall investment returns of insurance companies are not much different, but Ping An NBV growth rate is generally higher than that of peers and EV growth rate is generally more stable. Therefore, the standard deviation of the monthly average return rate of stock is lower than that of peers, and the gap with peers further increases, indicating that the stock price volatility is relatively small, the anti-cyclical attribute is stronger, and the investment value is highlighted by .
Traditional financial business has market leading, technology feeds back to finance: Ping An Life insurance , property insurance business scale firmly ranks second in the industry, life insurance NBV and property insurance underwriting profits have grown steadily, and continue to be better than peers. Ping An Bank operations remain stable and bad debts are repaired, and retail transformation continues to deepen. Asset management business is affected by the macro environment, the scale and profits of trusts, securities and third-party asset management have all contracted, but they are generally better than the industry. At present, through the application of AI technology, the efficiency of traditional finance has significantly improved - taking insurance claims as an example, Ping An handles 11 million+ claims annually, 98.7% of the same-day compensation, and 60% is self-service claims, and "technology empowers finance" has been gradually realized. Specifically: ① Ping An Life Insurance’s employee increase uses AI selection and AI interview technology, and the recognition rate of retained agents in 13 months reached 95.4%. At the same time, with the help of AI, we can realize group operation and continuously improve the timeliness of underwriting, insurance, claims and other services. As of 2018, there were 19 million AI automatic underwriting life insurance policies, accounting for 96% of the insurance applications. ② Ping An Property Insurance uses AI image recognition technology to determine loss in seconds and face recognition technology to pay online, providing 62.6% of customers with one-stop claim services such as self-service claims and video claims. As of 19H, the cumulative cost savings were about 100 million yuan. ③ Ping An Bank’s inclusive business has achieved 100% onlineization, and AI application has helped reduce the amount of non-performing loans by 67%.
actively builds five major ecosystems and develops rapidly in technology businesses: As of 19H, Ping An Technology has accumulated more than 18,000 patent applications in core technology fields such as artificial intelligence, blockchain, and cloud. Ping An is accelerating the transformation of scientific and technological achievements and actively building five major ecosystems of "financial services, medical and health, automobile services, real estate services, and smart cities". Among them, the three major ecosystems of finance, medical care and automobile have basically been formed, and the real estate services and smart city ecosystem are still in the brewing stage. Using to help the use of technology, the group has successfully incubated a number of financial technology companies such as Lufax Holdings, Financial One Account, Ping An Good Doctor, Ping An Medical Insurance Technology, etc. In terms of profitability, Financial One Account has successfully blocked 15 million frauds with the help of AI, reducing losses of US$45 billion (planned listing); Lufax (planned listing) and Autohome (listed in the US stock market) have achieved profitability; Ping An Good Doctor (listed in the H stock market) is expected to break even.At present, most of the main businesses in the ecosystem are in the early stages of incubation and development, and still need the support of traditional financial services. With the continuous incubation of various businesses, is expected to become an important source of incremental profits and a customer traffic diversion port for traditional financial services. By increasing investment in technology and continuously strengthening "technology empowers finance and technology empowers the ecology", ultimately realizing "ecological empowers finance" through flow monetization.
is similar to peers. In the early days of its establishment, Ping An mainly operates property insurance business. However, property insurance demand is relatively rigid and the business scale is limited. In 1994, the company quickly started a life insurance business with a potential market demand. It also learned from AIA to take the lead in introducing personal marketing among domestic insurance companies and quickly build a modern insurance business platform, laying a first-mover advantage for the rapid development of personal insurance channels. After the completion of the property and life insurance division in 2002, the company established Ping An elderly care, Ping An Health Insurance and Ping An Asset Management (2004-2005), with the accelerated professional operation process and rapid development of insurance business.
to form a comprehensive financial system with insurance and banking as the core. comprehensive financial layout began with Ping An Trust (established in 1995) and Ping An Securities (1996). In 2003, the company acquired 50% of the equity of Fujian Asian Bank through an equity transfer agreement, and the banking business officially began; in 2006, it acquired Shenzhen Commercial Bank to expand its commercial banking business resources; after two major asset restructurings in 2010 and 2011, Shenzhen Development Bank absorbed and merged the former Ping An Bank, and renamed Ping An Bank, operating nationwide banking business. At this point, a comprehensive financial system with insurance and banking as the core has basically been formed, laying a strong foundation for customer migration and transformation, cross-selling and steady growth of value, and the synergistic benefits have been continuously enhanced: in 2010, the Group achieved new premium of 10.5 billion yuan through cross-selling, which reached 51.5 billion yuan in 2018, with a CAGR of 23%; 19H has reached another level to 28.3 billion yuan (YoY+15%), and cross-selling is expected to continue to contribute new orders in the future.
Ping An began to deploy comprehensive financial business as early as 1995, and created the earliest online financial product sales website PA18 in 2000. Internet genes and securities, trusts, asset management, banking and other businesses have gradually developed and matured. The cross-penetration of customers in various product lines has been continuously improved, and the number of average customer contracts has been continuously increased. Therefore, we cannot judge the development of the group based on insurance alone, but should start from the perspective of comprehensive finance to find the driving factors of operating profits.
As of 19H, the group's operating profit was 73.5 billion yuan (YoY+24%), of which the institutional business operating profit was 6.9 billion yuan (YoY-23%), accounting for 9% of the group's operating profit. Group insurance, bank-to-public, trust and brokerage firms’ institutional clients have limited long-term growth; among the five major ecosystems, major institutional businesses such as Ping An City Technology, Ping An Smart City , and Medical Insurance Technology will become new additions to the development of the institutional business and are expected to help the risk control of personal business.
The profit of personal business mainly depends on the incremental customer volume and average customer profit. As of 19H, the operating profit of personal business was 66.6 billion yuan (YoY+32%), accounting for 91%, which is the main source of operating profit. After splitting, we found that the increase in customer increments and average customer profits directly determine the growth rate of personal business operating profits. Specifically:
(1) In the early stage of the expansion of new business, average customer profits are certain, and the increment of customers directly determines the increment of profits. The five major ecosystems will become the main source of individual customer increments. ①In recent years, among the new customers, the proportion of traditional financial individual customers has continued to decline, and the proportion of individual customers in the five major ecosystems has continued to increase, with 66% and 34% respectively in 19H, and the proportion of individual customers in the ecosystem has reached +24pct in 2015. 19H Group added 20.09 million new individual customers (YoY-22%), and the growth rate of new customers in the ecosystem and traditional channels declined. ② The group's traditional financial business is relatively mature, and the growth of traditional financial customers is limited; at the same time, among the five major ecosystems, Lufax, Autohome, and Ping An Good Doctor are the main sources of personal business. Among them, Lufax and Autohome have achieved profitability, and the traffic growth rate may slow down in the future; Ping An Good Doctor is still in the later stage of traffic accumulation and is basically close to the break-even point.Therefore, the role of traditional business customers in driving the growth of ecosystem users will be limited, and in the future, the transformation of users in ecosystems into customers will become the main growth point for individual customers.
(2) In the long run, the increase in customer volume is limited, and increasing average customer profits is the main way for personal business operations to continue and steadily grow profits. average customer operating profit depends on the profitability of the product and the average customer contract quantity. The high-value life insurance business, retail business with continuous increase in profitability and financial technology business have helped the average customer operating profit to continue to increase. As of 19H, the group's average customer operating profit was 340 yuan (YoY+21%).
①Lufax mainly engages in three businesses: wealth management, personal lending and government finance. In terms of its customer migration path: In 2015, a total of 300,000 Lufax users were converted into core financial customers (3, 5, 180, 40,000 people in life insurance, property insurance, banking, and securities respectively), while the conversion of core financial customers to Lufax users was as high as 4.19 million (105, 79, 210, and 250,000 customers in life insurance, property insurance, banking, and securities business customers were respectively). Although has limited conversion to core financial customers, its personal lending business is deeply intertwined with property insurance business and continues to contribute profits.
As of 19H, the loan balance of Lufax's personal lending business was 407.9 billion yuan (YoY+30%), which is Lufax's main source of profit (it is expected to contribute 50% of the profit), and it is also a larger risk point. In order to prevent credit risks, all borrowers forcefully purchase guarantee insurance , and the main partner is Ping An Property Insurance. 19H guaranteed insurance premium is 15.3 billion yuan (YoY-6%); Lufax and Ping An have outstanding risk control capabilities and good business quality, with a comprehensive cost rate of only 93.2% (YoY+6pct), and still achieve underwriting profit of 800 million yuan (YoY-20%), with a slight decline in business quality, but the company's timely reduction in scale (or it may be a cessation of some high-risk businesses), which will help continue to achieve underwriting profits.
At present, its P2P platform Lufax is actively responding to the "three reductions" requirements for supervision and will gradually withdraw from P2P business, or transform it into an online micro-loan and consumer finance company encouraged by supervision. As of the end of June 2019, the balance of P2P business loans was 98.4 billion yuan (only 24% of Lufax's 407.8 billion AUM), the overdue rate of more than 30 days was 2.15% (about 1/3 of other P2P platforms), and the conservative estimate is 4%~5%.Ping An holds 41% of the equity of Lufax Holdings. After deducting bad debts, the net profit of 's P2P business in the first half of the year was approximately 3.9 to 4.8 billion yuan, which will contribute 1.6 to 2 billion yuan of the group's net profit, with an impact of less than 2%. Under the long-term equity investment calculated by the equity method, Lufax 19H's net amount at the end of the period was 25.6 billion yuan, which actually contributed 10.5 billion yuan of the group's net assets; has little impact on the group's net assets of 764 billion yuan and 1.1 trillion yuan of EV. At the same time, and this adjustment, the existing business will not be affected, and the actual profit and EV impact should be calculated.
②AutoHome uses big data to empower merchants and increase sales through in-depth industry connections; C-end realizes traffic expansion and enhances customer stickiness by covering the entire life cycle of car selection, car viewing, and car use. Based on car purchase and other scenarios, it directly drives the consumer finance business of banks and Lufax (car business loans, consumer loans, etc.); and realizes momentum transformation through precise marketing, indirectly drives a great growth in auto insurance, guarantee insurance, etc. 19H has contributed a total of 11.2 billion yuan in financial loans and insurance transactions, and is expected to achieve further growth throughout the year (at 15.8 billion yuan at the end of last year).
But unlike Alibaba and Tencent, which have basic consumption and basic social scenarios, the audiences of Ping An’s five major ecosystems are based on specific and single scenarios. Therefore, the conversion rate of household is likely to be relatively low and the customer stickiness is relatively limited. However, after the user conversion is successful, the comprehensive financial operation powered by technology will make the customer experience significantly better than other financial platforms. At the same time, the risk control capabilities of the main business of comprehensive finance are relatively high, and process optimization may be more prominent. The richness of products and the professionalism of marketing will jointly help Ping An to quickly grasp customers' financial needs, thereby improving customer stickiness and average customer contract count, and driving operating profit growth.
Natural advantages of governance genes: private foundation + equity dispersion = market-oriented operation
The company's equity is scattered, and foreign capital, state-owned, private, and the public jointly hold shares. As of the end of 2018, the major shareholders holding more than 5% of the shares were: Bufeng Group (9.19%), Securities Finance + Huijin (5.64%, 2.99%/2.65%), and Shenzhen Investment Control (5.27%) under the Shenzhen State-owned Assets Supervision and Administration Commission. The company's equity is scattered, clear and balanced, there is no controlling shareholder, nor an actual controller, the power distribution is relatively even, and there is a check and balance mechanism among shareholders, giving management more room to exert subjective initiative.
Core leadership is stable and the management system is efficient. Most of my country's large financial enterprises are central enterprises and state-owned enterprises. The term of office of the chairman is three years and can be re-elected, but the term of office of the chairman is generally less than six years (up to two terms), and there is a hidden danger of frequent replacement of strategic decisions. Ping An’s management team with Ma Mingzhe as the core has been in office for more than 20 years. It has grown together with the group and is well aware of various businesses. Its strategic decisions are targeted and sustainable. At the same time, the strategic decisions of the core management can be efficiently transmitted, making the safe management system more efficient and the mechanism more flexible.
Continuously improves the incentive and constraint mechanisms to form a community of long-term interests with employees. In February 2015, Ping An established a core personnel shareholding plan, which lasts for 6 years. As of 2019, five phases have been implemented, benefiting thousands of employees, truly realizing the sharing of interests and risks of shareholders, companies and employees. At present, the main listed peers have not yet launched equity incentive plans, and Ping An’s employees are deeply bound to the company’s interests, which will help accelerate the transformation of traditional financial businesses and the implementation of technology, ecology and other businesses.
Company established a long-term service plan in December 2018. The plan is once a year, with the upper limit of the long-term service plan for the current year = net profit for the current year × N1. Participants are core talents that play an important role in the company's overall performance and long-term development. On May 14, 2019, the first period of long-term service plan shares repurchased, and a total of 54.29 million A shares were purchased, accounting for 0.297% of the company's total share capital, and the average transaction price was approximately RMB 79.10 per share.The employees participating in this long-term service plan mainly include: Ma Mingzhe, Sun Jianyi , Li Yuanxiang and Ren Huichuan , etc. Long-term service plan participants submit an application for ownership when they retire from the company, and finally obtain the ownership of the plan's rights after they are confirmed and the relevant taxes and fees are paid. It will also strengthen the long-term binding between company interests and employee interests, ensure that employees consciously promote the company's sustainable development and continuously create value for shareholders.
In October 2018, the board of directors reviewed and passed the "Repurchase of Company Shares and Related Authorization Plan", with the authorization amount of 10% of the total issuance share capital. The company plans to use 5-10 billion yuan of its own funds between 2019/4/29-2020/4/28, accounting for approximately 0.273%-0.546% of the total share capital. The current upper limit of the repurchase price is adjusted to 99.39 yuan per share. This repurchase began on June 19, 2019. As of now, a repurchase limit of 5 billion yuan has been reached. will be used in the company's employee stock ownership plan, including but not limited to the long-term service plan for the future year, demonstrating the company's confidence in its own development.
specially set up an executive committee to implement matrix management. As an investment holding company that develops comprehensive financial business, Ping An Group does not operate specific businesses and insists on separate operations and supervision. To this end, an executive committee is specially established at the operating level, and the group is responsible for the daily operation and management of the group during the recess of the shareholders' meeting and the board of directors. The members are composed of the CEO and the leaders of each subsidiary. The Executive Committee is the group's highest decision-making body, and is responsible to the board of directors. It has a professional decision-making management committee, a matrix management of subordinate professional companies, and makes collective decisions on major matters. This makes Ping An’s strategy formulation forward-looking and strategic execution efficient. In the 30 years of development, the pace has not lagged behind due to its huge scale. Instead, it has continuously incubated new growth points with traditional financial transformation, technology and ecology leading development.
upgrades the collective decision-making mechanism, and the joint CEO+matrix system promotes strategic transformation. In recent years, with the continuous advancement of the group's "financial + technology" and "financial + ecology" strategies, the comprehensive financial business model has gradually formed three main business lines: "personal business + company business + technology business". In 2018, in order to develop management and risk control of new business models, Ping An added three co-CEOs - Li Yuanxiang, Xie Yonglin, and Chen Xinying, on the basis of the executive responsibility system, to be in charge of personal business, company business and technology business respectively. The establishment of the co-CEO is conducive to the group's continuous practice of collective decision-making, division of responsibilities, and matrix management. On the basis of accelerating the integration of internal resources, improving collaborative efficiency, and strengthening risk control, it accelerates the promotion of the science and technology and ecological transformation strategy.
3 Life Insurance Business: Adhering to diversified and stable development, the anchor of stable valuation
2007 Ping An Life Insurance has developed rapidly since its listing of the A-share market in 2007. As of 19H, the total premium income of life insurance was 370 billion yuan (YoY+5%), and the CAGR from 2007 to 2018 was as high as 20%. The market share is 17%, ranking second in the market all year round.
Life insurance pre-tax operating profit = residual marginal amortization + net asset investment income + interest rate spread income + operational deviation and others. Since the remaining margin is set at the time of issuance of the policy and is accrued in order to not confirm the first daily profit, it is actually the present value of the policy's profit in the future year, the remaining marginal amortization is the main source of life insurance operating profit. Among Ping An Life Insurance's operating profits, the remaining marginal amortization sales account for about 90%. Long-term and stable residual marginal amortization helps life insurance profits grow steadily. As of 19H, Ping An Life Insurance's remaining marginal balance was 867.4 billion yuan (+10% from the end of the previous year), and the remaining marginal amortization was 35.8 billion yuan. Ping An uses the effective insurance amount as the residual marginal amortization carrier. In recent years, the overall amortization ratio has remained at 10%-11%. In the future, it may decline slightly with the narrowing of the marginal contribution of new businesses, but overall remains stable. 19H Life Insurance's pre-tax operating profit was RMB 54.9 billion (YoY+15%) and the remaining marginal amortization contribution accounted for 65% (YoY+3pct), which is the main source of driving force to boost the group's profit growth.
Short-term pressure does not hinder long-term development.During the good start of , Ping An Shou's main products were annuity insurance with a pricing rate of 3.5% and dividend insurance with a 2.5% dividend insurance with a , and the growth of new orders was slightly under pressure. The total new orders for 19H were 101.3 billion yuan (YoY-5%) and the new orders for personal business were 87.8 billion yuan (YoY-7%), but the decline in new orders has narrowed significantly compared with 18H. At present, 4.025% of the products will no longer be approved, and the agents of the public company adapt earlier. Sales pricing interest rate are only sold. Saving 3.5% savings insurance products will help the growth of new orders in the future better than peers
High-quality agents help individual insurance premiums maintain a high proportion throughout the year, and have an excellent term structure. insurances have always been the main channel of Ping An Life Insurance. The long-term emphasis on futures payment business has led to a high proportion of new orders for Ping An individual insurance during the period and a steady increase, helping the continuous growth of individual insurance renewal. Since the A-share listing, the proportion of individual insurance premiums in the total life insurance premiums has always remained at 80%+, and the proportion of individual insurance renewal has accounted for about 70% of the total renewal, and the proportion of individual insurance new orders in the total new orders has increased from 50%+ to 70%+. As of 19H, Ping An individual insurance premiums were 316.7 billion yuan (YoY+3%) and new policy premiums were 71.7 billion yuan (YoY-12%), of which 66.8 billion yuan (YoY-14%) were paid in the first-year premiums, accounting for 76% of the total new policies, which has formed a trend of driving the growth of total new policies with individual insurance payments.
agent has outstanding sales capabilities, and long-term, high-value product sales are smooth, helping individual insurance NBV continue to grow, NBVM remains high, and becoming the source of life insurance value . Personal insurance products have strong profitability and high NBVM; under the dual role of high-quality agents and brand premium capabilities, new personal insurance orders have increased steadily. Promoting individual insurance business to become the main source of Ping An Life Insurance’s value, and its share in life insurance NBV has remained at around 90% for a long time. As of 19H, Ping An Life Insurance NBV was 41.1 billion yuan (YoY+5%) and the personal insurance NBV was 36.2 billion yuan (YoY+3%), accounting for 88% of the total NBV; the personal insurance NBVM was 59% (YoY+10pct), which was more than 15pct higher than the total NBVM, but it was still 10pct lower than the AIA Personal Insurance NBVM (70%). At present, the long-term insurance NBVM has reached a high level. In the future, it is expected that the personal insurance NBVM will be further improved with the optimization of the savings insurance structure.
In August 2000, Ping An Life Insurance took the lead in launching the dividend-type savings insurance "Millennium Red" at the bank counter, thus opening the huge screen of bank insurance. After bank branches relaxed the agency restrictions on insurance companies in 2003, bank insurance account managers were quickly introduced in order to improve the term structure and profit margin of bank insurance business. Although it was the first to open the bank insurance channel and has a bank subsidiary, Ping An’s dependence on bank insurance has always been low: in 2009, Ping An’s bank insurance channel’s new orders and total premiums accounted for only 42% and 21%, far lower than the level of 70%+ of peers . At that time, the life insurance business was poor (mainly lump sum payment) and the channel was single (high proportion of bank insurance), which led to large fluctuations in premium growth, which was very likely to cause problems such as solvency, surrender, and cash flow. Therefore, from November 2010 to 2014, the former China Insurance Regulatory Commission issued several notices to increase sales management of bank insurance channels. Ping An responded quickly. From
Improved term structure helps the bank insurance NBVM improve. Although the new bank insurance policy in reached 27.1 billion yuan at its highest in 2009, NBV contribution has always been low, mainly because most of the products sold are high current prices and lump-sum payments, and NBVM is lower. For a long time, Ping An Bank Insurance NBVM has less than 5%, and its large changes mainly occur when the proportion of payment in the first year increases. In 2017, the proportion of first-year payments in the new bank insurance policy jumped from about 30% to 60%; 19H further increased to 86%, and the improvement of the term structure helped the bank insurance NBVM to rise sharply to 10% in 2017 and 19% in 19H respectively. However, compared with AIA, NBVM is still at a low level (Ping An 19% vs AIA 50%) and NBV accounts for a relatively low proportion (Ping An 2% vs AIA 30%). We infer that it is mainly due to AIA's better business structure.
High-quality agents are conducive to developing mid and high-end customers and have more sales advantages in central urban areas. Ping An is mostly mid-to-high-end customers, with 72% of customers with annual revenue of more than 100,000 in 19H, and the average customer contract number of mid-to-high-end customers is higher (ranging from 2-11 shares). With the same product profitability, the average customer profit will be higher, helping Ping An Life Insurance to establish a market competitive advantage in economically developed regions. Guangdong, Shandong, Jiangsu, Beijing and Zhejiang are the five major regions with the highest contribution to Ping An Life Insurance. In 2018, the total contribution was 41% of the total premium. Among them, the market share of Beijing, Shanghai and Guangdong was 24%, 19%, and 23%, respectively, which was significantly higher than that of peers.
Ping An Life Insurance product line is rich, savings insurance focuses on the "xx life" series of dividend insurance, and protection insurance is the main product of "Ping An Fu". Ping An Life Insurance provides customers with various types of products including critical illness, accident, medical insurance, lifetime life insurance and savings insurance. Each type of insurance covers a variety of product plans - Xiyue Life, Jinrui Life, Jinxi Life and other series of main savings insurance products, providing different insurance periods and annuity payment structures; at the same time, Ping An Fu, Fu Full Score, and other various insurance insurances provide multiple choices for disease, accident, and death protection. The rich product line directly brings multiple possibilities of customer service and fully meets the different needs of customers. In July this year, Ping An launched Big and Small Fortune Stars, reducing the liability for compensation for minor illnesses, and reducing the average premium of 1,000-2,000 yuan, opening up the product gradient and further segmenting the customer base, which is conducive to taking the lead in seizing some groups with guaranteed needs but limited income and reserve customer sources.
my country's personal insurance industry is still in the late stage of development, and consumption habits and product pre-order interest rates have led to the rapid growth of short-term savings insurance in the dividend period. After a brief development in the 1990s, the central bank began to cut interest rates seven times in 1996, and the one-year deposit rate dropped sharply from the high point in 1993 (10.98%) to 2.25% in 1999. The former China Insurance Regulatory Commission avoided the emergence of a new round of potential interest rate spread losses and lowered the predetermined interest rate of life insurance products to 2.5%. In order to improve product competitiveness, new life insurance products with wealth management attributes such as investment-linked insurance, dividend insurance, and universal insurance came into being, and have continued to occupy half of life insurance for many years since then.
From the perspective of total premium, 1) dividend insurance and universal insurance account for 50%+, and in recent years, dividend insurance is mainly mainly used. ①In 2010, among the top five products of Ping An Life Insurance, universal insurance occupied 4 seats, and has disappeared since then. Mainly, since 2011, the transformation of bank insurance channels has begun. The proportion of universal insurance hit a high point in 2009 (43%) and then fell to 19% in 2018. Except for the brief rebound after the liberalization of universal insurance reservation interest rates in 2015 (30%), the proportion of universal insurance has always remained at around 20% in recent years, and it has operated steadily. ② The proportion of dividend insurance continues to remain around 40%, which is the main type of life insurance. Since 2011, among the top five products, dividend insurance has dominated the market, accounting for 4-5 seats. Ping An Fen Red Insurance is mostly delivered products on 3/5/10 years, with a predetermined interest rate of 2.5%, both items are high, the debt cost is low, and the insurance period is long (15 years or lifetime). Although the value rate is limited (expected to be about 20%), the low debt cost helps reduce the company's potential interest rate spread loss risk.
For a long time, Ping An has adhered to the diversified and balanced development strategy, and has not single development insurance due to high value (the proportion of long-term protection products is lower than that of peers, 50% of Pacific Insurance and 60% of Xinhua in 2018), nor has it developed too much short-term payment savings insurance due to rapid expansion of scale (bank insurance transformation is decisive, lump payment has dropped by 20 billion yuan in two years, and has not caught up with the universal risk trend). Among the first-year premiums of , Ping An long-term insurance type 2, short-term savings saving type 3, and long-term savings products have maintained the first-year premiums of around 40%, 30%-35% and 6%, respectively. In 2018, NBVM was 95%, 55%, and 18%, respectively, but the long-term insurance NBVM was significantly higher than the short-term savings saving type, which directly led to a widening gap in the proportion of NBV: In 2018, NBVs were 490, 76%, and 5.2 billion yuan, respectively, accounting for 68%, 10%, and 7%. , and AIA's main products are high-value long-term insurance (serious illness + lifelong life) and long-term savings insurance (dividend + lifelong lifelong life), with NBV accounting for about 40%-45% and 35%-40% respectively. The better product structure makes AIA's overall NBVM (60%) higher than Ping An (44%). At present, Ping An short-term storage products have been fully developed and NBVM is not easy to improve. NBVM for long-term insurance and long-term savings insurance are at a high level. Therefore, the future improvement of NBVM mainly depends on the optimization of the savings insurance structure .As of 19H, Ping An’s new long-term savings insurance accounted for 6% (YoY+2pct), and the new short-term savings insurance accounted for 30% (YoY-7pct). The optimization of the savings insurance term structure helped NBVM improve, and the 19H savings insurance NBV accounted for 24% (YoY+5pct).
From the industry perspective, long-term savings insurance and long-term protection insurance are both absent, and short-term savings insurance demand is still there. Ping An’s diversified and balanced development strategy meets the current requirements. At the same time, since most consumers in mainland China still need to cultivate their insurance awareness, limited purchasing power, and the market still needs to be developed, Ping An cannot directly follow the single model of AIA and Prudential "long-term saving insurance + long-term protection insurance". It still needs to continue to use long-term value products such as "long-term saving insurance + long-term protection insurance" and short-term customer acquisition products such as "short-term saving insurance + short-term protection insurance (such as medical insurance, accident insurance)" as the supplement, so as to maintain the growth of business value, and then continuously develop customers and increase average customer profits.
From the perspective of insurance companies' absolute valuation, considering the future growth of new businesses, the long-term assessed value of insurance companies AV=included value EV+new business multiple N*new business value NBV, the new business multiple is the growth space of the future NBV. Without considering future growth (that is, N=0), AV=EV=effective business value VIF+adjusted net assets ABV.
2018, 4 AIA EV was US$54.5 billion, NBV was US$4 billion, Ping An Life Insurance EV was RMB613.2 billion, and NBV was RMB72.3 billion; as of September 6, 2019, the market value of AIA and Ping An Life was US$123.5 billion (converted at the exchange rate on the same day) and 968.5 billion (because the operating profit and EV of life insurance business accounted for 60%+, and the market value of life insurance was calculated based on 60% of the total market value of China Ping An A shares), and the new business multiples corresponding to AIA and Ping An Life were 17x and 5x respectively.
The insurance industry in mainland China is still in the late stage of development, and Ping An’s annualized new order growth rate is higher. Ping An Life Insurance’s new order growth is likely to be better than AIA. Even if the growth rate shifts in the future, the new business multiple will be at least 10. On the one hand, except for the industry adjustment period, Ping An Life Insurance's annualized new single-year compound growth rate is significantly higher than that of AIA. As of 2018, Ping An and AIA’s new annualized orders were 144.7 billion yuan and 6.8 billion US dollars respectively, and the CAGR since 2008 was 21% and 11% respectively. On the other hand, as of 2018, my country's life insurance depth was 2.7% and its life insurance density was US$225 per person, far lower than that of the United States (2.8%, US$1,674). Consumers' demand for protection, pension, etc. is still relatively large, so the potential market space for insurance in mainland China is much greater than that of Hong Kong, China. According to the Hong Kong Insurance Regulatory Bureau of China, the insurance purchase scale of mainland Chinese visitors from 2016 to 2018 was HK$727, 508 and 47.6 billion, respectively, and was HK$12.8 billion in 19Q1, and is expected to be approximately HK$50 billion for the whole year. At the same time, AIA's business accounts for less than 20% of AIA's annualized new order fees. Even if AIA and mainland Chinese consumers go to Hong Kong to purchase insurance, AIA can enjoy the dividends of the mainland Chinese industry, this part of the market is relatively limited. Ping An Life Insurance has been deeply involved in the mainland Chinese market, with strong agent strength and sufficient channels, which will make it easier to seize the industry dividends and achieve continuous growth in new policies and premiums. Assuming that Ping An Life Insurance will only have 30 years of new order inflows and the new order structure is consistent with the current situation, and and the CAGR drops to 10% in the next 30 years (AIA's current level), its new business multiple should be basically the same as AIA (that is, N=18, at this time, Ping An Life Insurance's market value should be 1.9 trillion). For the sake of caution, assuming that Ping An Life's new order will be only 6% in the next 30 years, the new business multiple will be at least 6, which corresponds to Ping An Life's market value of 1.05 trillion, which has 10% growth space compared with the current market value (0.96 trillion).
Ping An’s absolute valuation and relative valuation are both discounted than AIA. From the perspective of relative valuation, Ping An Life Insurance PEV is about 1x-1.5x, while AIA PEV is about 1.5x-2x.From the perspective of absolute valuation, under the prudent assumption, Ping An Life Insurance's new business multiple is 6. Based on the current market value, the EV in 2018 was only 534.7 billion yuan (far lower than the disclosed value of 613.2 billion yuan). And ABV itself is cautious enough, so the discount mainly comes from VIF. When N=6, the VIF is only 321.8 billion yuan, which is only 80% of the disclosed value.
Except for the industry's adjustment period from 2011 to 2013 and 2018, the growth rate of Ping An Life Insurance's new orders and NBV has always been around 10pct higher than that of AIA. From the perspective of EV, due to the large scale of existing business, NBV accounts for only about 10% of EVs at the beginning of the period, and its impact on EVs is limited. Therefore, the growth rate of Ping An EV is not greatly affected by industry adjustments, and the growth rate of Ping An ROEV and EV has been higher than that of AIA 10pct for a long time. It is estimated that when the business structure of 19H2 is certain and NBVM is certain, even if the new single-negative growth is 6%, positive NBV growth can be achieved; at the same time, long-term interest rates stabilize, the diversification of the investment structure resonates with the certainty growth of NBV, and EV will achieve stable growth. It is expected that Ping An Life Insurance's NBV growth rate in 2019 will be around 9%. Under the pessimistic assumption (the investment return rate is higher than the benchmark -50bps), the EV growth rate in 2019 will be about 15%; under the neutral assumption (the benchmark investment return rate is realized), the EV growth rate in 2019 will be about 19%. Therefore, from the perspective of relative valuation, Ping An Life Insurance business should not have discounts compared to AIA. Under the neutral assumption of , Ping An Life Insurance is given 1.9 times PEV, which corresponds to the market value of life insurance is 1.17 trillion, which has 20% room for growth compared with the current market value (0.97 trillion). The discount of
VIF is mainly due to market doubts about actuarial assumptions. Ping An actuarial assumptions are cautious, and both operations and investment have a positive contribution to EV, and long-term equilibrium is assumed, and its VIF should not be discounted. After comparing actuarial assumptions such as risk discount rate, mortality rate, critical illness incidence rate, return on investment, and retirement rate, we found that except for the return on investment, Ping An's actuarial assumptions are relatively cautious. From the perspective of the investment return rate assumption, AIA adjusts with the market, the volatility of the deviation rate is relatively small, and the average annual investment deviation rate is about 0.5%. However, Ping An’s investment return rate is basically fixed at 5%-5.5%, but its overall investment capacity is outstanding compared with its mainland Chinese peers. The investment deviation generally contributes positively to EV, with an average investment deviation rate of 1.8%. From the perspective of operational deviation, AIA and Ping An have high control efficiency; at the same time, actuarial assumptions are prudent, making indicators such as actual dead fee difference and surrender rate better than the assumption in the long run. Therefore, the long-term positive operational deviation can be achieved, with the average operating deviation rate being 0.6%, which is significantly higher than that of peers.
AIA focuses on long-term insurance and long-term savings insurance. At the same time, its investment return rate assumptions adjust in time with market changes, so its sensitivity to investment return rate is significantly lower than that of mainland Chinese insurance companies. It is more sensitive to mortality and morbidity. With the gradual adjustment of the product structure, Ping An has been selling products in recent years with dividend insurance and long-term insurance with low debt costs. 70% of the investment sensitivity of dividend insurance is transferred to the insured, and the insurance is considered to deteriorate serious diseases. Therefore, Ping An NBV and EV have decreased sensitivity to investment and increased sensitivity to morbidity.
Assuming that there is an extremely pessimistic situation of stocks and bonds and economic downturn, Ping An’s investment return rate is 100bps lower than the assumption, and the mortality and incidence rate increase by 10%. When extreme pessimism occurs, the return on assets required by shareholders will usually decrease. Assuming that insurance companies simultaneously reduce the risk discount rate by 50bps, then Ping An Life Insurance’s EV in 2018 is 516.5 billion yuan. In recent years, in Ping An Life Insurance NBV, the proportion of dead expenses and interest rates has remained at 66% and 34% respectively, and long-term insurance products are 75% and 25% respectively. The high level of the proportion of dead expenses and differences will keep the investment sensitivity stable. Even if the risk discount rate assumption is not adjusted, Ping An Life Insurance's EV in 2018 will still be 500.9 billion yuan. At this time, the 1.9 times PEV corresponds to the market value of life insurance of 0.95 trillion yuan, which is basically consistent with the current market value (0.97 trillion yuan). Currently, the liability cost of listed insurance companies is less than 3%, and even under extremely pessimistic situations, there is a high probability that interest rate spread will not be generated; at the same time, in terms of long-term development, insurance companies can generally achieve a total investment return of of or more, so Ping An Life should at least maintain its current valuation level.
4 Property and Casualty Insurance Business: Maintain rapid catch-up under underwriting profits
insurance types are fully set, premiums grow rapidly, and all insurance types achieve continuous profits. As of 19H, Ping An Property Insurance's premium income was 130.5 billion yuan (YoY+10%), with an premium CAGR of more than 25% from 2007 to 2018; the market share was as high as 21% (11pct increase from 2007), ranking second in the market. Continuously achieve underwriting profits, and the comprehensive cost rate is better than that of peers 2-3pct in the long run. However, the proportion of operating profit attributable to the parent dropped from 14% in 2017 to 11%, mainly due to the decline in the growth rate of underwriting profits.
Due to negative growth in new car sales and slowing down in auto insurance growth, the growth rate of Ping An Property Insurance in 19H slowed down to 9%, compared with the end of last year -6pct, but still higher than the peers 2-4pct, and higher than the industry average growth rate of 4-5pct; at the same time, the market share has increased from 8% in 2000 to 20% in 19H, and the gap with PICC Property Insurance has continued to narrow. Specifically: ① Before 2008, the market share was relatively stable, basically maintaining around 10% . ② From 2008 to 2011, the market share quickly rose from 11% to 17%, mainly benefiting from the launch of auto insurance and electric sales channels. In 2007, Ping An launched a telephone marketing channel and quickly promoted it nationwide. While making insurance convenient and fast, private car owners can enjoy up to 15% premium discount. Ping An Property Insurance quickly seizes market share with the help of electric sales channels. ③ Since 2012, we have continuously optimized claims services and vigorously developed non-auto insurance businesses. The market share has steadily increased to 20%, and the gap with PICC Property Insurance has narrowed to 13%.
benefited from the advantages of technology and continued to achieve underwriting profits. As of 19H, Ping An Property Insurance's comprehensive compensation rate and expense ratio were 59% (YoY+2pct) and 37% (YoY-1pct) respectively. The "incorporation of reporting and business" was strict, and the expense ratio dropped significantly; technology helped the compensation rate remained relatively stable and helped underwriting profits. With excellent pricing, risk control and loss determination capabilities, with the increase in technology, Ping An Property Insurance continues to achieve underwriting profits except from 2006 to 2008. All three years are special: ① Auto insurance developed rapidly in 2006, but the business quality declined, causing property insurance to suffer underwriting losses. ② In 2007, the market competition was fierce. The company increased its investment in high-quality businesses to reduce the compensation rate, but the expense rate also increased in the same proportion, and the comprehensive cost rate was basically stable at 102%. In 2008, two major natural disasters led to an increase in compensation expenditure; at the same time, the basic rate of compulsory motor vehicle insurance was lowered, and under the influence of the two phases, the compensation rate directly increased (the compensation for compulsory motor vehicle insurance cases in 2008 increased by 19% year-on-year), resulting in a comprehensive cost rate of up to 104%, and underwriting losses for three consecutive years. In recent years, with the help of AI, the calculation of losses is more accurate and the claims are more efficient. The increase in the
Under the new tax reduction policy, the suppression effect of excess income tax on net profit will be lifted, and ROE will be increased. According to brokerage China, the comprehensive cost rate of the property insurance industry in 2018 was 100.13%, and the underwriting profit for eight consecutive years came to an abrupt end, with an underwriting loss of 1.4 billion yuan. However, Ping An Property Insurance benefited from the group's technological advantages, accurately qualifying losses and quickly settled claims, reducing insurance fraud and controlling claims, and promoting Ping An Property Insurance's underwriting profit of 8.5 billion yuan (YoY+19%) and pre-tax profit of 19.5 billion yuan (YoY+3%) in 2018. Net profit was only RMB 12.3 billion (YoY-8%), mainly due to the increase in income tax expenses caused by the increase in handling fees and business growth. In 2018, the handling fees for property insurance business were 49.3 billion yuan (YoY+27%), accounting for 20% of premiums (YoY+2pct). Of which 5% cannot be paid before tax, resulting in a significant increase of income tax by 31% to 7.2 billion yuan, and the income tax rate increased by 8pct year-on-year to 37%, reducing net profit. At the end of May 2019, the Ministry of Finance issued a document that the pre-tax deduction ratio of handling fees and commission expenses of life insurance and property insurance companies increased from 10% and 15% to 18%, and the excess part was allowed to be carried forward for subsequent annual deductions. After the increase in the deduction ratio of , it will greatly alleviate the tax burden pressure of insurance companies, thereby releasing net profits and supporting diversified operations.Ping An 2018 income tax settlement amount decreased by 1.9 billion yuan, directly increasing the net profit of 19H. Under the strict control of "incorporation of reporting and banking", the handling fees and commission expenses of major property insurance companies in 19H account for less than 15% of premium income, and there is no need to pay additional taxes, which helps increase ROE and increase property insurance valuation.
Three major channels: personal agent, power grid sales and car dealers, and have strong control over the channels. Although the annual report disclosure caliber is different, there is generally a large correlation. We can basically judge channel change based on this:
① It already had the power grid sales gene in the early stage, which facilitates continued efforts in the future. Ping An established the PA18 financial portal and property insurance call center in 2000 and 2003 respectively to provide policy sales, consultation, renewal, claims and other businesses. In 2003, the premiums of agent channels (including banks, car dealers, professional/personal agents) accounted for 64%, and the premiums of direct sales (including internal sales representatives, PA18 financial portals and call centers) accounted for 34%, of which PA18 financial portals accounted for 9%.
②Grid sales have made efforts and quickly gained market share. In 2007, after Ping An officially launched the power grid sales channel business, it quickly seized the market with its preferential prices and convenient services, becoming the main sales channel of property insurance. As of 2016, the power grid sales premium was 63.2 billion yuan (YoY+25%), accounting for 36%, and the auto dealer and cross-selling were 41.5 billion yuan (YoY+22%) and 29.7 billion yuan (YoY+19%) respectively, accounting for around 20% and 15%.
③The commercial vehicle fare reform has been deepened, and the independent channel coefficient is set. The advantage of the 15% special discount for power grid sales channels is no longer there. The proportion of agency channels has risen sharply, and the premiums of cross-selling channels have steadily increased. In July 2016, the commercial vehicle fare reform was promoted nationwide. In 2017 and 2018, the power grid sales premium was 58.9 billion yuan (YoY-7%) and 27 billion yuan (YoY-54%) respectively, and the proportion of premiums dropped significantly by 25pct to 11% in 2018. After the channel coefficient is liberalized, the sales flexibility of personal agents is higher. The premiums in 2017 and 2018 were 32 billion yuan (YoY+88%) and 57.4 billion yuan (YoY+79%) respectively. As of 19H, the proportion has reached 22%, an increase of 10pct in two years. Ping An Property Insurance has nearly 150,000 agents, less than 10,000 direct sales representatives, and a large number of them are part-time agents. There are problems such as uncontrollable false sales and insufficient professionalism. To this end, Ping An launched the "Chuangbao.com APP" to provide standardized training for part-time agents, real-time online tracking and sales process management. The synchronous improvement of manpower and management efficiency has promoted the rapid growth of personal agency channels under policy stimulation. At the same time, driven by the business of life insurance, banks and Lufax, the cross-selling premium of property insurance has increased steadily. As of 19H, it has reached 21.5 billion yuan (YoY+11%), accounting for 17% of the total premium, an increase of 12pct from 2007.
seized the advantages of power grid sales channels. The scale of auto insurance has rapidly expanded, the market share has rapidly increased, and the customer stickiness is high. In recent years, new car sales have declined, resulting in the gear shift in the growth rate of auto insurance premiums. But similar to the industry, Ping An Auto Insurance accounts for about 70%-80%, and it occupies a dominant position in property insurance. As of 19H, the premiums in the auto insurance industry were 396.6 billion yuan, and Ping An Auto Insurance had a premium of 92.3 billion yuan (YoY+9%), with a market share of 23%. The CAGR from 2007 to 2018 was more than 25%, significantly higher than the industry (18%). In order to improve the stickiness of existing customers, Ping An launched the service commitment of "less than 10,000 yuan, complete information, and three-day compensation" in 2009 to optimize the customer experience; starting from 2014, the "Ping An Good Car Owner" APP opened up the offline platform, and in-depth cooperation with 4S stores, repair shops and maintenance chain stores to provide comprehensive automotive aftermarket services.
Auto insurance continues to achieve underwriting profits, and profitability rebounds after the fee reform, and technology empowerment helps achieve excess underwriting profits. While car insurance premiums grew, underwriting profits were worry-free, but underwriting profits continued to decline from 2011 to 2015, mainly because the proportion of compensation expenditure in premium income increased from 44% in 2010 to 53% in 2013. In 2016, the second-wheel commercial vehicle fare reform was promoted nationwide. The former China Insurance Regulatory Commission liberalized the channel coefficient and underwriting coefficient of commercial auto insurance. The growth rate of auto insurance premiums slowed down. With the intensification of market competition, the proportion of handling fees gradually expanded, increasing by 10pct to 24% within three years from 2016 to 2018.Although the comprehensive expense ratio has increased, the compensation ratio has steadily decreased, driving the recovery of underwriting profits. The business structure is better (82% of the household car business of compulsory motor vehicle insurance accounts for), financial technology helps (AI underwriting, loss determination, anti-fraud technology), and the auto insurance compensation rate has always been at a low level in the industry (53.9%). As of 2018, auto insurance underwriting profit was 4.4 billion yuan (YoY+8%), and the underwriting profit rate was as high as 2.6%, far higher than the industry's 0.14%.
Ping An non-auto insurance cares about the help of health insurance, liability insurance and guarantee insurance to achieve rapid growth. As of 19H, non-auto insurance premiums were 38.1 billion yuan (YoY+12%), and the growth rate of 19H was lower than that of the industry (expected to be 30%+), mainly due to negative growth in guarantee insurance. Overall, the CAGR of non-auto insurance premiums from 2007 to 2018 was more than 20%, better than the industry (14%); currently accounts for about 29% of property insurance premiums.
ROE= (underwriting profit + investment income)/net assets
=underwriting profit margin*earned premium/net assets + investment return*Investment assets/net assets
=(1-comprehensive cost rate)*underwriting leverage+investment rate*Investment leverage
In recent years, the market competition pattern has been stable. The market share of PICC, Ping An and Taiping Insurance is stable at around 33%, 23%, and 10%. There is little possibility of market structure reshaping in the short term. Premium income is likely to grow steadily, and the growth rate of earned premiums and total investment assets will decline. Therefore, the growth of underwriting leverage and investment leverage is relatively difficult. Therefore, the comprehensive cost rate is the key to affecting the ROE of property insurance business.Ping An Property Insurance has strong channel strength and pricing capabilities. Relying on AI damage determination and claims settlement, it can effectively control leakage and leaks, and the comprehensive compensation rate has been at a low level for a long time. In the future, with the continuous advancement of commercial vehicle fare reform, the expense rate will be reduced; insurance companies with advantages in compensation control will become more prominent. At the same time, the tax cut policy helps the effective tax rate to 20%, and Ping An Property Insurance ROE is expected to remain at 18%+.
5 Investment side: Stable and elastic, no interest rate loss risk
Due to the characteristics of insurance companies' liability operations and the need to match long-term liabilities, the allocation of large-scale assets of insurance companies is basically fixed income assets, and the proportion of equity assets is relatively stable. As of 19H, Ping An's total investment assets were nearly 3 trillion yuan, ① Fixed income assets accounted for 72% (VS AIA 83%), of which fixed deposits accounted for 7% and bonds accounted for 45% (VS AIA 78%); ② Among equity assets, stocks and equity funds accounted for 11% (VS AIA 12%), and long-term equity investment accounted for 3.5%. ③The total non-standard assets are 541.1 billion yuan, accounting for 16%, of which 15% are invested in debt plans and debt-based wealth management products, and 1% are invested in equity-based wealth management products. Compared with the end of 2018, the proportion of bond investment was -0.8pct, stocks and equity funds accounted for +1.1pct, and long-term equity investment accounted for +0.2pct. We infer that since 2018, the company has increased its long-term equity investment, which may be the first to launch IFRS9, and long-term equity investment can ensure the stability and flexibility of equity assets.
It is estimated that after IFRS9 is enabled, the proportion of assets measured at fair value in stock fund investments, which are included in the current profit and loss increase, increasing the volatility of the total investment return. Due to its large banking business, Ping An began to implement IFRS9 in 2018. Under IAS39, financial assets can be divided into HTM (assets held to maturity), FVTPL (assets measured at fair value and whose changes are included in current profit and loss), AFS (available for sale financial assets) and AR (loans and receivables), and most of stocks and funds are included in AFS. In 2018, Ping An launched the IFRS9 accounting standard. Under the new standard, AFS was cancelled, and financial assets were divided into AC (financial assets measured at amortized cost), FVTPL and FVOCI (assets measured at fair value and whose changes were calculated into other comprehensive income). The proportion of assets directly included in profit and loss increased, resulting in greater fluctuations in investment yield and profit: ① Among the total investment assets, the proportion of assets included in FVTPL in 2018 was 18.5% (+16.6pct), of which 11.2% (+9.9pct), 2.8% (+2.4pct), and 1.6% (+1.6pct). ② The proportion of FVTPL included in the investments of fixed income, stocks and equity funds increased significantly from 2%, 4%, and 0.2% to 14%, 30%, and 100%, respectively. Therefore, although the proportion of stock + equity funds in insurance companies generally remained at around 10% in 2018, Ping An's total investment return fluctuated even more: 3.7% under IFRS9 and 5.2% under IAS39, affecting the stability of the total investment return.
Long-term equity investment guarantees insurance companies to obtain long-term and stable returns, thereby reducing the impact of stock price fluctuations on investment returns under IFRS9 and reducing the volatility of the total investment return. At present, Ping An's long-term equity investment is measured using the equity method. The annual stock price change of the invested target does not affect the investment income. The investment income should be recognized according to the shareholding ratio, and the other comprehensive income of the invested unit should be recognized by the other comprehensive income of the invested unit, and the book value of the long-term equity investment should be adjusted. In 2018, the company increased its stake in China Fortune Land Development many times, with a shareholding ratio of 25%, making it the second largest shareholder. While achieving the matching of insurance funds with high-quality real estate, it reduces the fluctuations in the total investment return.
Ping An investment yield level is the best in the industry. As of 19H, the total investment return rate under Ping An IFRS9 was 5.5% (YoY+1.5pct), and the net investment return rate was 4.5% (YoY+0.3pct).Youbang's total investment return rate is 7.2% (YoY+3.6pct).
AIA's total investment return is higher than Ping An and other mainland Chinese insurance companies most of the time, mainly due to the elasticity of equity assets.
extends the duration of assets and effectively reduces the risk of duration mismatch. On the one hand, since insurance companies operate liabilities, and the liabilities are mainly long-term liabilities and fixed income on the asset side, if the asset term is shorter than the liabilities term, the asset-liability duration gap is large, which makes insurance companies face the risk of reinvestment when they expire. If there is no suitable asset matching, insurance companies will face liquidity risks (no assets fulfill corresponding obligations). On the other hand, insurance companies have a long liability maturity and are highly sensitive to interest rates; while short-term investments on the asset side are less sensitive to interest rates, and the value of assets and liabilities fluctuates with market interest rates fluctuating. When the market interest rate falls, the provision of insurance contract reserves increases, while the asset value decreases at the same time. If the insurance company's assets value and liabilities value, it will generate a risk of interest rate difference (re-allocated asset return cannot cover future potential expenditures) and solvency risks. Therefore, insurance companies need to match assets and liabilities to achieve the matching of assets and liabilities in the maturity structure, quantity, and yield structure with the expected interest rate structure as much as possible, so as to reduce liquidity risk and solvency risks.
According to " Daily Economic News ", Ping An currently has a debt duration of 14.8 years, an asset duration of 8.2 years, and an asset duration gap of 6.6 years, which is smaller than its peers. As of 2018, based on the remaining term, ① Ping An time deposit has a duration of about 3 years, with a proportion of 1% due to more than 5 years, a proportion of 70% due to 1-5 years, and a proportion of 20% due to less than 1 year. ② The duration of the bond is about 6 years, with maturity of more than 5 years accounting for 54%, maturity of 1-5 years accounting for 32%, and maturity of less than 1 year accounting for 14%. According to AIA's annual report, financial assets under one year, 1-5 years, 5-10 years and more than 10 years account for 5%, 10%, 16%, and 45% respectively. After weighting, AIA's duration is about 10 years. Insurance contract liabilities account for 2%, 9%, 10% and 79% respectively, with a liability duration of about 15 years, and the estimated asset-liability duration gap is less than 5 years. listed insurance companies seized the high interest rates of agreement deposits and long-term bonds in January and April 2019, and allocated fixed deposits, long-term treasury bonds/local bonds and suitable non-standard assets. The pressure on allocation of new assets and maturing assets this year was basically digested.
From the perspective of liquidity risks, Ping An needs to expire and re-allocate fixed income assets in 2018 account for about 15%, while AIA only has 3%.Compared with AIA, Ping An’s asset-liability duration gap and maturing asset re-allocation pressure is greater, mainly because AIA’s major asset allocation adheres to the principle of matching investment with policy currency, such as Hong Kong, Singapore and mainland China’s premium income from insurance purchases in Hong Kong can actually be allocated overseas assets. Although long-term bond yields in developed markets are relatively low, there are many options for configurable long-term assets. Therefore, the proportion of fixed income assets with a duration of more than 10 years is as high as 85%, while the proportion of fixed income assets with a duration of more than 5 years in mainland China is only about 50%, resulting in the risk of mismatch of asset duration of Chinese insurance companies being higher than that of AIA.
Considering that long-term interest rates may fluctuate downward (or less than 3%) and the equity market remains volatile under the increasing external uncertainty, we assume that 20% of non-standard assets and bonds of listed insurance companies matured in 2018, and at the same time, assuming that new bond yields are 2.8%, non-standard yields are 7.1%, and stock + stock fund yields are 5%. , Ping An's total investment yield in 2019 is higher than 5%, which is higher than the current liability capital cost (less than 3%), and interest spread benefits can still be obtained.
Division valuation: All businesses are the best, comprehensive finance should have added value
Ping An comprehensive financial model has developed rapidly, and cross-selling has grown rapidly: From traditional finance to the establishment of five major ecosystems, customer migration has switched from the early core finance to the one-way output of technology business to two-way exchange, gradually realizing the empowerment of finance by ecology and technology. At the same time, on the basis of strict risk control, the Group realizes the linkage between liability and investment through guarantee insurance for other businesses by property insurance, insurance funds in trust/broker asset management/bank wealth management, etc. Therefore, Ping An's comprehensive financial business model should enjoy added value and thicken valuation rather than drag down.
's current stock price corresponds to PEVs from 2019 to 2021 1.4, 1.2 and 1.0 times respectively. Ping An Life Insurance accounts for 60% of operating profits, and the market still uses the EV valuation system to provide valuations. Therefore, multiple businesses such as property insurance, banking, securities, trusts, and financial technology are only given a valuation of 1 times. Referring to the average industry valuation level, Ping An will be valued in segments: It is expected that the company's total market value in 2019 will be approximately 1.78-2.06 trillion yuan, and the company's current market value is 1.6 trillion yuan, which is still undervalued, and it maintains a strong recommendation rating.
(Report source: Founder Securities)
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Although the comprehensive expense ratio has increased, the compensation ratio has steadily decreased, driving the recovery of underwriting profits. The business structure is better (82% of the household car business of compulsory motor vehicle insurance accounts for), financial technology helps (AI underwriting, loss determination, anti-fraud technology), and the auto insurance compensation rate has always been at a low level in the industry (53.9%). As of 2018, auto insurance underwriting profit was 4.4 billion yuan (YoY+8%), and the underwriting profit rate was as high as 2.6%, far higher than the industry's 0.14%.Ping An non-auto insurance cares about the help of health insurance, liability insurance and guarantee insurance to achieve rapid growth. As of 19H, non-auto insurance premiums were 38.1 billion yuan (YoY+12%), and the growth rate of 19H was lower than that of the industry (expected to be 30%+), mainly due to negative growth in guarantee insurance. Overall, the CAGR of non-auto insurance premiums from 2007 to 2018 was more than 20%, better than the industry (14%); currently accounts for about 29% of property insurance premiums.
ROE= (underwriting profit + investment income)/net assets
=underwriting profit margin*earned premium/net assets + investment return*Investment assets/net assets
=(1-comprehensive cost rate)*underwriting leverage+investment rate*Investment leverage
In recent years, the market competition pattern has been stable. The market share of PICC, Ping An and Taiping Insurance is stable at around 33%, 23%, and 10%. There is little possibility of market structure reshaping in the short term. Premium income is likely to grow steadily, and the growth rate of earned premiums and total investment assets will decline. Therefore, the growth of underwriting leverage and investment leverage is relatively difficult. Therefore, the comprehensive cost rate is the key to affecting the ROE of property insurance business.Ping An Property Insurance has strong channel strength and pricing capabilities. Relying on AI damage determination and claims settlement, it can effectively control leakage and leaks, and the comprehensive compensation rate has been at a low level for a long time. In the future, with the continuous advancement of commercial vehicle fare reform, the expense rate will be reduced; insurance companies with advantages in compensation control will become more prominent. At the same time, the tax cut policy helps the effective tax rate to 20%, and Ping An Property Insurance ROE is expected to remain at 18%+.
5 Investment side: Stable and elastic, no interest rate loss risk
Due to the characteristics of insurance companies' liability operations and the need to match long-term liabilities, the allocation of large-scale assets of insurance companies is basically fixed income assets, and the proportion of equity assets is relatively stable. As of 19H, Ping An's total investment assets were nearly 3 trillion yuan, ① Fixed income assets accounted for 72% (VS AIA 83%), of which fixed deposits accounted for 7% and bonds accounted for 45% (VS AIA 78%); ② Among equity assets, stocks and equity funds accounted for 11% (VS AIA 12%), and long-term equity investment accounted for 3.5%. ③The total non-standard assets are 541.1 billion yuan, accounting for 16%, of which 15% are invested in debt plans and debt-based wealth management products, and 1% are invested in equity-based wealth management products. Compared with the end of 2018, the proportion of bond investment was -0.8pct, stocks and equity funds accounted for +1.1pct, and long-term equity investment accounted for +0.2pct. We infer that since 2018, the company has increased its long-term equity investment, which may be the first to launch IFRS9, and long-term equity investment can ensure the stability and flexibility of equity assets.
It is estimated that after IFRS9 is enabled, the proportion of assets measured at fair value in stock fund investments, which are included in the current profit and loss increase, increasing the volatility of the total investment return. Due to its large banking business, Ping An began to implement IFRS9 in 2018. Under IAS39, financial assets can be divided into HTM (assets held to maturity), FVTPL (assets measured at fair value and whose changes are included in current profit and loss), AFS (available for sale financial assets) and AR (loans and receivables), and most of stocks and funds are included in AFS. In 2018, Ping An launched the IFRS9 accounting standard. Under the new standard, AFS was cancelled, and financial assets were divided into AC (financial assets measured at amortized cost), FVTPL and FVOCI (assets measured at fair value and whose changes were calculated into other comprehensive income). The proportion of assets directly included in profit and loss increased, resulting in greater fluctuations in investment yield and profit: ① Among the total investment assets, the proportion of assets included in FVTPL in 2018 was 18.5% (+16.6pct), of which 11.2% (+9.9pct), 2.8% (+2.4pct), and 1.6% (+1.6pct). ② The proportion of FVTPL included in the investments of fixed income, stocks and equity funds increased significantly from 2%, 4%, and 0.2% to 14%, 30%, and 100%, respectively. Therefore, although the proportion of stock + equity funds in insurance companies generally remained at around 10% in 2018, Ping An's total investment return fluctuated even more: 3.7% under IFRS9 and 5.2% under IAS39, affecting the stability of the total investment return.
Long-term equity investment guarantees insurance companies to obtain long-term and stable returns, thereby reducing the impact of stock price fluctuations on investment returns under IFRS9 and reducing the volatility of the total investment return. At present, Ping An's long-term equity investment is measured using the equity method. The annual stock price change of the invested target does not affect the investment income. The investment income should be recognized according to the shareholding ratio, and the other comprehensive income of the invested unit should be recognized by the other comprehensive income of the invested unit, and the book value of the long-term equity investment should be adjusted. In 2018, the company increased its stake in China Fortune Land Development many times, with a shareholding ratio of 25%, making it the second largest shareholder. While achieving the matching of insurance funds with high-quality real estate, it reduces the fluctuations in the total investment return.
Ping An investment yield level is the best in the industry. As of 19H, the total investment return rate under Ping An IFRS9 was 5.5% (YoY+1.5pct), and the net investment return rate was 4.5% (YoY+0.3pct).Youbang's total investment return rate is 7.2% (YoY+3.6pct).
AIA's total investment return is higher than Ping An and other mainland Chinese insurance companies most of the time, mainly due to the elasticity of equity assets.
extends the duration of assets and effectively reduces the risk of duration mismatch. On the one hand, since insurance companies operate liabilities, and the liabilities are mainly long-term liabilities and fixed income on the asset side, if the asset term is shorter than the liabilities term, the asset-liability duration gap is large, which makes insurance companies face the risk of reinvestment when they expire. If there is no suitable asset matching, insurance companies will face liquidity risks (no assets fulfill corresponding obligations). On the other hand, insurance companies have a long liability maturity and are highly sensitive to interest rates; while short-term investments on the asset side are less sensitive to interest rates, and the value of assets and liabilities fluctuates with market interest rates fluctuating. When the market interest rate falls, the provision of insurance contract reserves increases, while the asset value decreases at the same time. If the insurance company's assets value and liabilities value, it will generate a risk of interest rate difference (re-allocated asset return cannot cover future potential expenditures) and solvency risks. Therefore, insurance companies need to match assets and liabilities to achieve the matching of assets and liabilities in the maturity structure, quantity, and yield structure with the expected interest rate structure as much as possible, so as to reduce liquidity risk and solvency risks.
According to " Daily Economic News ", Ping An currently has a debt duration of 14.8 years, an asset duration of 8.2 years, and an asset duration gap of 6.6 years, which is smaller than its peers. As of 2018, based on the remaining term, ① Ping An time deposit has a duration of about 3 years, with a proportion of 1% due to more than 5 years, a proportion of 70% due to 1-5 years, and a proportion of 20% due to less than 1 year. ② The duration of the bond is about 6 years, with maturity of more than 5 years accounting for 54%, maturity of 1-5 years accounting for 32%, and maturity of less than 1 year accounting for 14%. According to AIA's annual report, financial assets under one year, 1-5 years, 5-10 years and more than 10 years account for 5%, 10%, 16%, and 45% respectively. After weighting, AIA's duration is about 10 years. Insurance contract liabilities account for 2%, 9%, 10% and 79% respectively, with a liability duration of about 15 years, and the estimated asset-liability duration gap is less than 5 years. listed insurance companies seized the high interest rates of agreement deposits and long-term bonds in January and April 2019, and allocated fixed deposits, long-term treasury bonds/local bonds and suitable non-standard assets. The pressure on allocation of new assets and maturing assets this year was basically digested.
From the perspective of liquidity risks, Ping An needs to expire and re-allocate fixed income assets in 2018 account for about 15%, while AIA only has 3%.Compared with AIA, Ping An’s asset-liability duration gap and maturing asset re-allocation pressure is greater, mainly because AIA’s major asset allocation adheres to the principle of matching investment with policy currency, such as Hong Kong, Singapore and mainland China’s premium income from insurance purchases in Hong Kong can actually be allocated overseas assets. Although long-term bond yields in developed markets are relatively low, there are many options for configurable long-term assets. Therefore, the proportion of fixed income assets with a duration of more than 10 years is as high as 85%, while the proportion of fixed income assets with a duration of more than 5 years in mainland China is only about 50%, resulting in the risk of mismatch of asset duration of Chinese insurance companies being higher than that of AIA.
Considering that long-term interest rates may fluctuate downward (or less than 3%) and the equity market remains volatile under the increasing external uncertainty, we assume that 20% of non-standard assets and bonds of listed insurance companies matured in 2018, and at the same time, assuming that new bond yields are 2.8%, non-standard yields are 7.1%, and stock + stock fund yields are 5%. , Ping An's total investment yield in 2019 is higher than 5%, which is higher than the current liability capital cost (less than 3%), and interest spread benefits can still be obtained.
Division valuation: All businesses are the best, comprehensive finance should have added value
Ping An comprehensive financial model has developed rapidly, and cross-selling has grown rapidly: From traditional finance to the establishment of five major ecosystems, customer migration has switched from the early core finance to the one-way output of technology business to two-way exchange, gradually realizing the empowerment of finance by ecology and technology. At the same time, on the basis of strict risk control, the Group realizes the linkage between liability and investment through guarantee insurance for other businesses by property insurance, insurance funds in trust/broker asset management/bank wealth management, etc. Therefore, Ping An's comprehensive financial business model should enjoy added value and thicken valuation rather than drag down.
's current stock price corresponds to PEVs from 2019 to 2021 1.4, 1.2 and 1.0 times respectively. Ping An Life Insurance accounts for 60% of operating profits, and the market still uses the EV valuation system to provide valuations. Therefore, multiple businesses such as property insurance, banking, securities, trusts, and financial technology are only given a valuation of 1 times. Referring to the average industry valuation level, Ping An will be valued in segments: It is expected that the company's total market value in 2019 will be approximately 1.78-2.06 trillion yuan, and the company's current market value is 1.6 trillion yuan, which is still undervalued, and it maintains a strong recommendation rating.
(Report source: Founder Securities)
Please log in to the Future Think Tank www.vzkoo.com to obtain the report.
Log in now, please click: "Link"
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