J.P. 摩根-亚洲-保险行业-亚洲保险业焦点与争议：2019年Q2的问题-2019.5.2-25页.pdf

Asia Pacific Equity Research02 May 2019 Asia InsuranceFocus&Debate:Questions for 2Q19InsuranceMW Kim AC(852)2800-Bloomberg JPMA MKIM J.P.Morgan Securities(Asia Pacific)LimitedAditi Joshi(91-22)6157-J.P.Morgan Securities(Asia Pacific)Limited/J.P.Morgan India Private LimitedDeepika Mundra(91-22)6157-J.P.Morgan India Private LimitedJoanne Cheng(852)2800-J.P.Morgan Securities(Asia Pacific)LimitedJJ Park(82-2)758-J.P.Morgan Securities(Far East)Limited,Seoul BranchBharat Iyer(91-22)6157-J.P.Morgan India Private LimitedSee page 23 for analyst certification and important disclosures,including non-US analyst disclosures.J.P.Morgan does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment In this report,we summarize the main points of investor focus and discussionaround the 1Q19 result announcements and conference calls.We also highlight several key trends in the region that we believe should be monitored closely:life front-book(margin/volume),life back-book,distribution,non-life cycle,earnings,and B/S items amid falling bond yields.So far this season,China Life,Ping An Group,SBI Life,and HDFC Life have reported the strongest quarterly results.Life product margin upside in China/India.We are seeing evidence of very strong life product mix enhancement in this quarter,especially for major life insurers across the region.China Life/Ping An Life reported 28%/6%oya NBV growth,while SBI Life/HDFC Life reported 23%/13%oya NBV growth.We forecast 18%oya 1Q19 NBV for AIA Group.New sales volume in life market looked mixed,but strong in India.During 1Q19,Chinas major insurers reported first year premiums declined 12%oya,excluding China Life/New China Life,as insurers cut volumes on short-term savings policies.As high volume season is over,we expect a volume recovery from 2Q19.We expect negative volume growth in Korea and Thailand due tofalling bond yields.In India,the top three private life insurers(SBI Life,IPRU Life,HDFC Life)delivered 12%oya 1Q19 APE growth.We expect a sequential volume recovery from last years low base.Improving back-book quality in China/India.Chinas top insurers,China Life/New China Life,reported lower surrender ratios of 0.62/0.60%with 3.34/2.5%p oya improvement signaling that insurers are facing less cash outflow pressure.This leads to a“snowball effect”in the top-line with higherin-force premium growth(10%oya).One positive datapoint in Indias life sector is that persistency ratios in most cohorts showed positive improvement.The agent distribution channel is more valuable.Chinas major insurers have streamlined agent headcounts as the focus is shifting to value(e.g.,Ping An Life:1.31 mn,-7.5%vs.Dec-18).The old agent distribution model of pushing sales agents to sell lower-margin volume product looks to be almost over.Underwriting headwind persists in non-life sector.There has been significantunderwriting deterioration across the region.Chinas lower auto premium base put pressure on underwriting performance(1Q19 combined ratio:PICC P&C/Ping An P&C:98.3%,2.6%p oya/97%,1.1%p oya).In India,there was no premium hike in third-party(TP)motor in Mar-19.In Korea,the auto premium hike(3%)was just this past January,yet the industrys deterioration phase continues.We see a trend of softening pricing in the auto and fire lines.Consensus earnings revisions.We expect positive upward earnings revision potential in Chinas life sector post strong quarterly earnings(major life insurers 1Q19 NP:61%oya).We see little earnings revision potential in other regions.Bond yield flattening and B/S implications.Asias local long-end bond yields are falling to YTD low levels across the region except China.Indias life insurers are beneficiaries,with positive sensitivity to earnings/EV amid falling bond yields.Korea life insurers will likely face higher solvency/earnings risk.Key Publications:China Insurance:Fundamentals fuel to bolster equity driven momentum:Raising PTs and closing most UWsAIA Group:Worth looking at cash flow prospects from old policies;more cash,growth and stability from VIFLAT Cycle Risks?Korea Insurers:Potential capital-raising cycle in the life sector;Add non-life into mid-year weaknessIndia Insurance:4Q19 preview and focus on FY20 product strategy;SBI Life/IPRU Life are top OWs2Asia Pacific Equity Research02 May 2019MW Kim(852)2800- Investment thesisAsias insurers are in the midst of reporting 1Q19 results(India:4Q19,March-end fiscal year).So far,China Life,Ping An Group,SBI Life,and HDFC Life have reported strong quarterly results.PICC P&C,New China Life,CPIC,and IPRU Life have reported relatively weak quarterly outcomes.One key thing in this result season is that insurers broadly benefited on earnings and balance sheet from equity market recovery(MSCI Asia-ex Japan:+13%YTD).Besides positive equity market movement,we have observed key trend changes in product,channel,and several B/S items.Those include life front-book(margin/volume),life back-book,distribution channel,non-life cycle,earnings,and B/S items amid falling local bond yields.We highlight key discussion points as follows.Focus#1:Life product margin upside in China/India Many countries in Asia-ex are below US$10K GDP per capita,which suggests that household insurance demand is based largely on“wealth accumulation”needs(or savings policies),which entail tiny product margins.Against this curve,we are observing very strong life product mix enhancement evidence in this quarter especially for major life insurers across the region.Increasing protection demand,especially in Chinas tier 1 cities(where GDP per capita exceeds US$10K)and higher sales growth on protection in India,looks to drive high-quality growth.In this quarter,China Life/Ping An Life reported 28%/6%oya NBV growth.SBI Life/HDFC Life reported 23%/13%oya NBV growth.We forecast 18%1Q19E NBV for AIA Group.We see similar strong NBV growth in the next few quarters partially via product margin enhancement.As top insurers in the region are enjoying higher entry barriers in protection/health policy sales,leveraging their strong distribution channels and sales training platforms,the incumbent advantage is likely to drive product margin enhancement in the next couple of quarters with higher NBV growth potential.Focus#2:New sales volume in life market looks mixed,but strong in IndiaDuring 1Q19,major China insurers first year premiums declined 12%oya(except for China Life/New China Life:+9%/24%oya)as insurers cut their volume on short-term savings policies during the period of“jump-start sales”.As this high volume season is over,we see volume recovery potential for major China insurers from 2Q19.We expect negative volume growth potential in Korea and Thailand considering local long-end bond yield flattening and stricter solvency regulation.The savings/annuity has contributed more than half of new life sales.Thus,for the rest of year,we expect continuing volume pressure in these countries.Unlike other markets,the top three private life insurers in India(SBI Life,IPRU Life,HDFC Life)delivered 12%oya of annualized premium(APE)growth,with a larger salescontribution in protection in this quarter.As last years volume base is low due to volatile equity market movement and we see equity markets now positive(Nifty50:8%YTD),we see sequential volume recovery potential in Indias life sector.We would see similar positive volume growth potential in Malaysia considering the countrys product mix(investment-linked policy sales)and increasing demand on health protection coverage.HK/China-H:YTD performance%Source:Bloomberg.China-A:YTD performance%Source:Bloomberg.India:YTD performance%Source:Bloomberg.0.0%10.0%20.0%30.0%40.0%50.0%New China Life-HPing An-HChina Life-HCPIC-HAIA GroupZhongAn OnlinePICC P&CPICC Group-HHSI Index0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%-10.00%0.00%10.00%20.00%30.00%ICICI LombardICICI PrudentialSBI LifeHDFC LifeNew IndiaGIC ReNIFTY Index3Asia Pacific Equity Research02 May 2019MW Kim(852)2800- Focus#3:Improving reserve back-book quality in China/India One positive surprise in this quarter is that there has been positive quality improvements in the liability reserve on the B/S.Chinas top insurers(China Life/New China Life)reported lower surrender ratios of 0.62/0.60%with 3.34/2.5%p oya improvement signaling that insurers are facing less cash outflow pressure as short-term saving policy portion declined for the last few years.This leads to a“snowball effect”in the top-line with higher in-force premium growth(10%oya)seeminglyadding larger residual margin on the B/S.In India,one positive datapoint in thesector should be the persistency ratio improvement.Contrary to market concerns on higher policy cancellation potential,especially amid volatile equity market trends,the persistency ratios in most cohorts show positive improvement driving higher fee-income from the existing ULIP reserve and positive operating variances in EV.In our view,improving/stabilizing back-book quality should be a key micro driver as faster back-book compounding is a key concept for investing in the sector.We see risks on reserve quality in Korea as weaker economic growth leads to lower persistency ratios and reserve quality is under pressure amid lower bond yields.We have similar concerns on Thailands life market as the single savings portion has been a larger portion of total sales.Focus#4:Value of distribution channel is rising As observed in recent China datapoints,major insurers have streamlined sales headcount as the focus shifts from volume growth to value growth(Ping An Life:1.31 mn,-7.5%vs.Dec-18).The sales contribution from single premium,a popular product in the bancassurance channel,has largely declined.This suggests the old agent distribution model of pushing sales agents to sell lower-margin volume product is almost over.Going forward,training and productivity of sales agents could be an important consideration for investing in the sector.Also,high performing independent financial advisors(IFAs)could emerge as a more valuable distribution channel in China,especially for insurers with relatively smaller sales agent channels.In Korea,under better customer protection,the regulator is trying to cap upfront commission on IFAs(i.e.,general agency:GA).This regulatory change could lead to significant bargaining power recovery potential for top insurers with protection policy market share gain.In India,we found insurers starting to de-couple from captive bank models under the open architecture.Meanwhile,their captive banks(State Bank of India,HDFC Bank,ICICI Bank)should remain key distribution partners with 55-65%of total APE contribution potential.Focus#5:Underwriting headwind persists in non-life sector Historically,the spring season has been regarded as good for seasonality.However,there has been larger underwriting deterioration across the region during this quarter.Chinas underwriting deterioration is partially due to the full pricing liberalisation in the auto line.However,we should see better commission control in the next couple of quarters,as lower auto premium base would put pressure on underwriting performance(1Q19 combined ratio:PICC P&C/Ping An P&C:98.3%,2.6%p oya/97%,1.1%p oya).In India,there was no premium hike in third party(TP)motor premium in Mar-19.Given the underwriting cycle is deteriorating(120%combined ratio in 9MFY19),we would likely see relatively smaller underwriting improvement potential going forward.In Korea,the auto premium hike(3%)was just this past January,so the industry is expected to report a higher auto loss ratio in 1Q19(JPMe:86.0%-88.9%,+3.5 to+6.0%oya).In Malaysia,we see pricing softening trends in the auto and fire lines.Thus,across the region,the focus will be on when the industry will enter a better insurance pricing hike cycle given the current underwriting environment remains highly challenging.Korea:YTD performance%Source:Bloomberg.-10.00%-5.00%0.00%5.00%10.00%15.00%Samsung F&MKorean ReSamsung LifeDB InsuranceTongYang LifeHanwha LifeHyundai M&FKOSPI Index4Asia Pacific Equity Research02 May 2019MW Kim(852)2800- Focus#6:Consensus earnings revisionsHistorically,changes to earnings expectations have been an important share price driver in Korea and Taiwans insurance sectors as they could lead to better dividend yields,while the bottom line has been a less important share price driver in India/China as the top-line is the growing stage for consuming capital.In this result season,thanks to strong equity markets and stabilizing local long-end bond yield,we see positive upward earnings revision potential in Chinas life sector post strong quarterly earnings(major life insurers 1Q19 net profit:61%oya).Chinas life stocks are currently trading at 11x-16x P/E.Focus#7:Bond yield flattening and B/S implications Asias local long-end bond yields are falling to YTD low levels across the region,with the exception of China.Historically,life stocks have performed poorly in a domestic falling interest rate/yield curve flattening cycle due to their balance sheets being based largely on interest-rate-sensitive assets and liabilities under higher capital leverage.In Korea,we are concerned about a significantly adverse impact on potential earnings/solvency capital as lower bond yields lead to potential reserve deficits on the liability adequacy test(LAT).Thus,re-assessing the B/S impact could be important for Korea this result season.Chinas liability reserve is partially marking-to-market and the reserve discount rate currently looks to set close to the market rate.Thus,we see relatively smaller implications following the bond yield change in Chinas life sector.Contrary to other markets in Asia,Indias life insurers generally have positive sensitivity to earnings/embedded value amid falling bond yields(+1.1%-3.5%EV sensitivity against a 50bps decrease in bond yields)as a larger portion of back-book cash flow is based on fee income rather than investment spread margin.5Asia Pacific Equity Research02 May 2019MW Kim(852)2800- Figure 1:China:10 yr govt bond yield trend%Source:Bloomberg.Figure 2:Korea:10 yr govt bond yield trend%Source:Bloomberg.Figure 3:India:10 yr govt bond yield trend%Source:Bloomberg.Figure 4:Thailand:10 yr govt bond yield trend%Source:Bloomberg.Table 1:Asia-ex Insurers:Comp valuation sheetLcl,%,xBberg CodeRatingPrice(30-Apr-19)PT(Dec-19)UpsideP/E 19eP/E 20eP/BV 19eP/BV 20eP/EV 19eP/EV 20eChina/HKChina Life-H2628 HKOW22.2041.085%16111.71.60.60.5China Life-A601628 CHOW30.3035.016%25182.62.51.00.9Ping An-H2318 HKOW94.45120.027%11112.32.01.31.2Ping An-A601318 CHOW86.10100.016%12112.41.81.41.1CPIC-H2601 HKN32.1535.09%11101.61.50.60.6CPIC-A601601 CHN36.1831.0-14%15132.11.90.80.8New China Life-H1336 HKN43.4544.01%13101.61.40.60.5New China Life-A601336 CHUW57.4538.0-34%19162