A hint of a turnaround in life insurance in Jun
- Life insurance’s 1H22 NBV was disappointing, -45% yoy, with agent numbers down 51% yoy, the worst among major peers.
- It is encouraging that Jun 2022’s monthly NBV returned to positive growth, with Apr and May key to driving 2Q22 NBV down 39.3% yoy (1Q22: -48.6%).
- P&C insurance continues to outperform life insurance, with 1H22 P&C net profit growth of 23% yoy better than 1H22 life insurance’s -31% yoy.
- Maintain Add rating with an unchanged TP of HK$29.
Life continues underperformance; P&C outperforms in 1H22
1H22 net profit fell 23% yoy, with 2Q22 net profit down 10% yoy (1Q22: -36% yoy). 1H22 net profit for life insurance fell 31%, but rose 23% yoy for property and casualty insurance (P&C). 1H22 net profit comprises 47% of our FY22F estimate.
What we liked about the 1H22 results
i) 13-month persistency ratio was 87.8%, up 6.1%-pts yoy, though the 25-month persistency ratio, due to it being a lagged indicator, was 74.7% down 6.2%-pts yoy; ii) 1H22 effective tax rate was 7%, -10%-pts yoy; iii) 1H22 combined ratio (COR) was 97.2%, down 2.1%-pts yoy, with 1H22 auto COR at 96.6%, -2.4% yoy and 1H22 nonauto COR at 98.4%, -1.5%-pts yoy; iv) 1H22 non-auto P&C premiums rose 17.6% yoy, driving total 1H22 P&C premiums up 12.3% yoy; v) 1H22 monthly average first-year premiums (FYP) per agent rose 33.6% yoy to Rmb7,906.
What we did not like about the 1H22 results
i) Life new business value (NBV) fell 45.3% yoy, with 2Q22 (-39.3%) better than 1Q22 (48.6%). We are encouraged by the return to NBV growth in the month of Jun 2022; 1H22 NBV margin was 10.7%, down 14.7%-pts yoy; ii) This was likely due to 1H22 bancassurance FYP rising by 1,125.5% yoy, comprising 39% of 1H22 total FYP (1H21: 4%). On the other hand, 1H22 agency new FYP fell 35% yoy, with agency FYP (annualised new premium [APE] equivalent) also down 35% yoy; iii) 1H22 monthly average agent numbers were 312,000, -51% yoy and -24% hoh; iv) 1H22 operating profit after tax growth was 10% yoy (2H21: 24% yoy).
What else we found of interest
i) 1H22 agency NBV fell 48% yoy, while 1H22 bancassurance NBV rose 101% yoy. 1H22 agency NBV comprised 94% of total NBV (1H21: 98%), while 1H22 bancassurance NBV comprised 6% of total NBV (1H21: 2%); ii) 1H22’s ratio of cost of required capital held to value of half year’s sales before cost of capital was 19.4%, up 5.8%-pts yoy; iii) 1H22 alternative investments comprised 19% of total investments.
Reiterate Add rating; Unchanged SOP-based TP of HK$29
Re-rating catalysts: stabilisation of premium growth and potentially strong equity markets. Key downside risks: intensifying competition, Covid-19 lockdown, continued declines in agent numbers and greater regulatory risks.