POA takeaways for Zhong An Insurance (6060 HK, BUY)

Salient points in management presentation:

  1. Achieved outperforming premium growth. While stringent policy environment limits sector growth in the short term due to policy headwinds, Zhong An managed to still gain market share amid industry consolidation with premium growth stabilizing in Oct after the sector-side slump in Sep.
  2. Innovative products the strong growth engine. Zhong An’s innovative products such as Pet insurance and Screen shattering insurance provides strong and consistent potential growth. 
  3. Insurtech products further penetrating. Zhong An’s insurtech products and services have extended to Thailand and Vietnam, and for the first time expand to Europe market (Ireland). Expect strong growth whilst global digitalization reform. 

Three key questions

How would you see the impacts of the recent rectification of online insurance industry? 

Overall the regulatory authorities encourage insurers to have high-claim-ratio-and-low-expense-ratio cost structure. Aggressive marketing strategies are no longer permitted and that caused strong impacts to overall online insurance industry. We achieved strong growth in July and August but due to this new rectification, we experienced short term shock in Sep. However, we managed to earn market share with competitors exiting the race track. With long term perspective, we see the rectification encourages healthy and reasonable competition and thus favors licensed insurers.  

How would see the outlook of the four key ecosystems (Health, digital lifestyle, consumer finance, and auto)?

We believe that the insurance sector will continue to bear pressure in 2022, but we are targeting to maintain above average growth. Health and digital lifestyle will maintain our key emphasis, to further cultivate the market and extending our penetration. While auto ecosystem remains small in our business model, we see the impact of the past two-year auto reform will come to an end and expect recovery.  

How is the profitability of the new innovative products?

All of our innovative products have now achieved underwriting profits, even though profitability might be impacted due to large initial investments. Our pet insurance have achieved above-digital-lifestyle-average profitability and we see strong market demand and potential going forward. Now the product is more like a protection product but going forward we will extend the pet insurance to become an ecosystem.