Lagging behind peer group
- NCI’s 1H22 NBV fall of 48% yoy was the worst among insurers under our coverage, following an equal-worst 2H21 NBV performance of -52% yoy.
- Agent numbers are still falling, though at a slower rate yoy than before (1H22: -28%; 2H21: -36%).
- Unlike the other larger insurers, NCI’s 13-month persistency ratio worsened in 1H22, down 4.5% pts yoy to 84.3%, the lowest among peers.
- Maintain Add. Cut TP to HK$23.40 on lower FY22-24F NBV, EV and EPS.
Below-peer performance continued in 1H22
New China Life Insurance’s (NCI) 1H22 new business value (NBV) fell 48% yoy, while its 1H22 net profit fell 51% yoy, with both performances the worst of the China insurers under our coverage. 1H22’s NBV performance follows on from an equally worst-of-peer NBV performance of -52% yoy in 2H21 (see Life is a constant struggle dated 30 Mar 2022). 1H22 net profit comprised 47% of our revised FY22F net profit estimate (34% of previous FY22F net profit estimate).
What we liked about the 1H22 results
1H22 agent numbers were 318,000, -28% yoy & -18% hoh (2H21: -36% yoy & -12% hoh).
What we did not like about the 1H22 results
i) Monthly average number of qualified agents fell 42% yoy. However, the monthly average qualified rate for agents rose to 19.1% in 1H22, up 1.6% pts yoy; ii) 1H22 13-month persistency ratio fell 4.5% pts yoy to 84.3%; this ratio was worst of peers. NCI was also the only China insurer under our coverage that saw a deterioration yoy (Fig 4); iii) 1H22 NBV margins (annualised premium equivalent basis [APE]) was 12.8%, -8.4% pts yoy; iv) 2Q22’s percentage of first year regular premiums that have premium payment duration over 10 years was 20%, -16% pts yoy; v) 2Q22 agent first year premiums (APE) fell yoy by 28% (1Q22: 22%; 1H22: -23%); 2Q22’s mix of agent FYP (APE) within total FYP (APE) fell to 45%, -15.3% pts yoy. 2Q22 bancassurance’s mix of total FYP (APE) was 53%, with 2Q22 bancassurance FYP(APE) up yoy by 32% (1Q22: -6%; 1H22: 4%); vi) 1H22 health insurance FYP fell 38% yoy. 1H22 short-term health insurance premiums fell 23% yoy.
What else we thought was interesting about the 1H22 results
1H22 total investment yield was 4.2% (-2.3% pts yoy), while 1H22 net investment yield was 4.7% (+0.2% pts yoy).
Maintain Add rating; GGM-based TP cut to HK$23.4 from HK$28.5
Our weighted average P/EV and P/BV GGM-based TP is cut 13% to HK$23.4, driven by cuts to FY22F-24F EV (0% to -2%), NBV (-24% to -36%) and EPS (9% – 27%). Potential re-rating catalysts: stabilisation of premium growth and potentially strong equity markets. Key downside risks are intensifying competition & further Covid-19 outbreaks.