Benefitting from the rise of the mass affluent
? We hosted Ping An in Malaysia on a post-results roadshow at end-Mar 2023.
? Aggressive bancassurance recruitment has it well placed to tap mass affluent customers and benefit from strong household deposit growth, in our view.
? Ping An is confident that it has passed the ‘heavy-lifting’ stage of its reforms and is committed to both 1Q23F and FY23F NBV growth.
? Reiterate Add rating. SOP-based TP unchanged at HK$80.
Significant ramp-up of bancassurance recruitment
Ping An Insurance’s significant ramp-up in the recruitment of private wealth advisers (PWA) within its bancassurance channel sees it well placed to tap China’s mass affluent customers. It had 1,600+ private wealth advisers in FY22 (FY21: 300+) and is targeting 3,000-4,000 in FY23F. Ping An states these PWAs are 1.4x more productive than its diamond-tier insurance agents. As Ping An’s bancassurance relationship with its bank does not have to be renewed every year (unlike other insurers), this allows it to invest in its bancassurance channel for the long term. In the near term, this also sees it well-positioned to take advantage of the recent strong growth of household deposits, which rose in Feb 2023 to a 12-year high of 18% yoy (Fig 1), as well as subdued demand for bank wealth management products. We believe Ping An’s bancassurance channel has higher margins vs. peers, given its relatively higher mix of regular premiums, which contributed 16% of bancassurance’s FY22 first-year-premiums.
Well past the ‘heavy-lifting’ stage of its reform programme
Ping An expressed firm conviction that it was well past the ‘heavy-lifting’ stage of its reform programme, even as its reforms continue. It was confident 1Q23F and FY23F would see a return to new business value (NBV) growth. Early batches of its channel reform programme have already been delivering clear and measurable benefits in terms of NBV growth (Fig 3). No timeline, however, was given for a return to agent growth. In our view, this may be because of a draft agent regulation that, if passed by the regulators, could make agent recruitment more difficult. Ping An did caution that Vshaped NBV recovery is unlikely.
Credit guarantee insurance recovering, but over a long timeframe
Given that a downcycle for small-medium-enterprise lending could last 12-16 months, we think that the recovery of underwriting profitability for Ping An’s credit guarantee insurance (CGI) business could be similarly prolonged. We believe CGI was the key driver of Ping An’s 4Q22 combined ratio rise to 107.5% (+7.4% pts yoy; Fig 4). 2H22 CGI combined ratio was 149.8% (+55.6% pts yoy; Fig 5).
Reiterate Add rating, given attractive valuations
Ping An remains our top pick of China insurers. Our SOP-based TP remains at HK$80. Potential re-rating catalysts: better premium growth and stabilising agent numbers. Downside risks: Lower investment yields and management instability.