Navigating a 70% growth cliff
- The acceleration of Ping An’s 2Q23’s individual first year premium (FYP) growth to 70% yoy (from 1Q23’s 10%) beat our forecast of 50% yoy.
- Given that 1Q23’s 10% individual FYP growth led to 1Q23’s 8.8% NBV growth, a 2Q23F NBV growth of more than 60% looks possible.
- With the strong 2Q23 FYP growth, in part due to regulatory changes, we see risks of falling NBV growth yoy in both 3Q23F and 2Q24F. Reiterate Add.
2Q23 individual FYP growth yoy of 70% is the highest since 1Q17
? Ping An Insurance’s 2Q23 individual FYP growth of 70% yoy (Fig 1) is the strongest since 1Q17’s 81% yoy and much stronger than 1Q23’s 10% yoy (Fig 3). It is also stronger than our 2Q23F growth forecast of 50% yoy.
? This strong growth was partly due to the reduction of the guaranteed rate for increasing sum-assured whole-life products, from 3.5% to 3.0%, effective end-Jun 2023. The reduction of this 3.5% rate led to very strong demand for these products across the life insurance industry leading up to the end of Jun. We believe that Ping An was one of the key beneficiaries of this strong FYP growth.
NBV growth of more than 60% yoy could be possible for 2Q23F
? Assuming minimal NBV margin compression yoy in 2Q23F, we think that 2Q23F NBV growth could possibly be more than 60% yoy. Note that Ping An’s 1Q23 NBV growth of 8.8% was only slightly lower than the individual FYP growth of 10%. This suggest that Ping An had managed its 1Q23 NBV margin compression well, despite a drag on margins caused by adverse actuarial assumption changes. The individual channel comprises both distribution via agents and via banks.
Sustainability and a high base for future growth are key concerns
? We believe that the cut of the guaranteed rate from 3.5% to 3% was due to regulatory guidance, and we do not expect it to be repeated in the near future.
? With demand for life insurance products potentially brought forward from early-3Q23F to 2Q23 due to the pre-rate-cut purchasing rush, this raises some concerns about whether Ping An can successfully navigate the individual FYP growth yoy drop-off in 3Q23F (from 2Q23’s 70% yoy), and whether growth yoy would be possible in 2Q24F.
Reiterate Add rating; Ping An remains a top China insurer pick
? We reiterate Add given the attractive valuation, with an unchanged SOP-based TP of HK$80. Potential re-rating catalysts: better premium growth, and stabilising agent numbers. Downside risks: Lower investment yields, and management instability.
