China Insurance Sector ： Growth slower across both life and P&C

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION™ Client-Driven Solutions, Insights, and Access 21 April 2014 Asia Pacific/China Equity Research Insurance (Financials) China Insurance Sector MONTHLY Growth slower across both life and P&C The Chinese insurers have all reported their March 2014 premiums, where we saw slower headline growth in both life and P&C insurance. For life insurance, we believe that the quality mix is likely to be improving and will improve further throughout 2014 as new bancassurance rules requiring 20% of sales to be 'insurance' comes in from 1 April 2014—with a lot of (low-margin) growth from this channel currently ahead of the change. Key premium trends in March 2014 were as follows: ■ Life insurance—growth slowing: Headline March premium growth was weaker for many insurers: China Pacific +16.2% YoY, Ping An +8.7%, China Taiping +3.7% YoY (APE +25%), New China Life -5.2%, China Life -21.3% and PICC Life -37.4%,. ■ P&C insurance—growth robust: Growth was robust in general for the sector (but below 1Q14 growth for most) with Ping An +27.4%, China Taiping +20.7%, China Pacific+11% and PICC +10% YoY. We continue to believe that life insurance underlying growth will continue to improve in 2014, with bancassurance rule changes helping companies improve their value focus. P&C insurance growth will likely remain mid-teens overall for 2014, with key issue being a lack of price increases this year which are needed to restore margins and hence sector lacks near-term catalysts. We continue to prefer companies where we believe better underlying quality new business growth exists – which in our view remains Ping An, China Pacific and China Taiping (with agent retention key given high growth). Figure 1: China Insurers — March 2014 premium growth / value metrics Mar-141Q144Q133Q132Q13CAGR, 12 mths rolling (%pa)P/E (x)P/EV (x)* VNB (x)* %pa%pa%pa%pa%pa1yr3yr 5yrChina Life-21.318.1-16.8-4.126.78.20.13.110.1x1.2x3.9xPing An11.4x0.9x-1.6x- Life (60%)8.722.68.69.37.213.59.614.9- P&C (15%)27.427.927.818.58.520.922.334.4China Pacific13.1x0.9x-1.7x- Life (60%)16.225.3-2.14.611.310.62.49.6- P&C (40%)11.013.514.214.420.016.717.123.8New China Life-5.253.057.7-4.3-5.527.79.815.89.1x0.8x-4.1xChina Taiping10.4x0.8x-2.1x- Life3.742.9-5.837.461.634.624.125.9- Life in-force APE25.034.36.931.945.428.624.636.2- P&C20.724.326.745.042.633.827.721.7PICC Group9.3x0.7x-35.4x- Life (30%)-37.4141.937.6123.1-3.673.98.521.1- P&C** (70%)10.014.718.015.815.415.913.617.110.8x1.8x12mth forward Notes: *uses non-life EV as 1.9x book value for P&C and 0.9x for bank, APE = AP + 10% SP. Source: Reuters, Company data, Credit Suisse estimates Research Analysts Arjan van Veen 852 2101 7508 arjan.vanveen@credit-suisse.com Frances Feng 852 2101 6693 frances.feng@credit-suisse.com Contribution by: Craig Cao 21 April 2014 China Insurance Sector 2 Figure 2: Asia Pacific insurance—key financial metrics/price performance ReportingMarketMonthlyDailyMonthlyPrice52 Week12mth12mthInv'mentYearConsensusPE (x)EPS GrowthP / BV (x)ROE (%pa)P / NTA (x)ROTE (%pa)P / EV (x)EV growthROEV (%pa)VNB (x)VNB growthPayout ratio (%)Div Yld (%pa)Price movement (%)CompanyCurrencyCapVolumeVolumeLiquidity17-Aprhigh/lowTargetReturnRatingEndPE (x)*12mth forward diluted (Credit Suisse forecasts)1wk1mth1qtr1hy1yrYTDUS$mUS$mUS$m%locallocal%7309118236531-DecAustraliaAMP.AXAMPAUD14,326889446.2%5.184.12-5.675.327.7%NTRL31-Dec15.5x16.3x16%1.9x10.1%3.7x22.4%1.3x8%8.1%11.3x4%87%5.0%-0.4%3.8%15.1%11.9%0.8%18.0%CGF.AXChallengerAUD3,336210106.3%6.723.65-6.727.5015.5%OPFM30-Jun10.9x10.6x0%1.6x14.3%2.0x19.1%nanananana41%3.9%5.2%4.0%6.5%14.7%57.7%8.4%CVW.AXClearviewAUD422100.1%0.730.57-0.77nanaNR31-Dec17.3x17.3x9%1.3x7.3%nanananananana49%2.8%0.7%-2.7%8.2%18.6%18.6%18.6%NHF.AXNIB HoldingsAUD1,3142011.5%2.802.06-2.892.959.7%NTRL31-Dec16.2x16.2x7%3.3x20.1%4.3x26.5%nanananana71%4.4%-3.1%4.1%4.5%26.1%25.0%2.6%TWR.AXTowerNZD2812117.5%1.451.41-2.241.6622.4%NTRL30-Sep12.0x12.0x-4%0.9x7.6%1.0x8.2%0.4x5%3.3%-60x8%80%7.9%2.1%-3.3%-9.9%-26.1%-22.7%-6.5%CVO.AXCovermoreAUD6182113.4%2.081.74-2.20nanaNR31-Dec20.6x20.6x3.2x15.6%nanananananana45%2.2%-4.6%-5.5%9.5%10.9%IAG.AXIAGAUD12,091763386.3%5.605.34-6.216.0012.2%NTRL30-Jun11.7x13.6x-18%2.0x14.3%3.9x28.6%nanananana62%5.1%0.0%3.5%-1.6%-4.3%-3.4%-3.8%QBE.AXQBEUSD13,8681,4747410.6%11.8710.16-17.4914.3024.1%OPFM31-Dec11