Key takeaways from Malaysia roadshow
- Ping An continues to focus on a diversified mix of products and distribution channels, given its integrated financial services plus healthcare strategy.
- The establishment of a community grid team to manage ‘orphan’ policies has helped stabilise its life insurance persistency ratios.
- Covid-19 outbreaks led to an increase in the combined ratio of its credit guarantee insurance in 1Q22, and we think this likely continued in 2Q22F.
- Reiterate Add rating with an unchanged TP of HK$72.
Emphasising diversity of products and channels
Ping An continues to focus on a diversified mix of products and distribution channels, given its integrated financial services plus healthcare strategy. For products, it does not focus on sales of only single insurance products, but rather insurance plus health management services, insurance plus high-end eldercare and insurance plus homebased eldercare. On its channel reform, in addition to its agent channel, it also has the bancassurance private wealth adviser channel, the community grid channel and a lower tier channel. Together these three channels’ contribution to overall new business value (NBV) rose from 9.1% in FY19 to 15.1% in FY21.
Continued efforts to improve persistency
Ping An’s 13-month persistency bottomed in FY21 after falling since FY17 (Fig 2) and continued improving in 1Q22. One of the reasons for the previous fall in persistency ratios was due to ‘orphan’ policies that resulted from high agent turnover (Ping An’s agent numbers fell from a peak of 1.4m agents in 4Q18 to 1Q22’s 537,864 [Fig 3]). Ping An’s community grid team has run pilots in 11 regions, with this leading to a material improvement in these ‘orphan’ policies.
Possible green shoots for agent numbers?
A weak labour market has historically been favourable for agent recruitment. While this may be the case in 2Q22F, we point out that Ping An still remains heavily focused on improving agent quality, and such agents recruited under such conditions may be lower quality and later have lower retention rates. Nevertheless, we believe we may be nearing the worst in terms of yoy agent number trends.
A difficult time for credit guarantee insurance
While we think low 1Q22 auto insurance combined ratios continued into 2Q22F due to low accident frequency amidst Covid-19 outbreaks, this was likely offset by worsening combined ratios for credit guarantee insurance which persisted into 2Q22F.
Reiterate Add on attractive valuations; TP unchanged at HK$72
Reiterate Add given attractive valuations (Fig 18), especially as the worst may be over operationally. Potential re-rating catalysts: bottoming premium growth or stabilising agent numbers. Downside risks: A-share market weakness and Covid-19 lockdowns.