Deutsche Bank Markets Research Asia Hong Kong Banking / Finance Insurance Industry China Insurance Sector Date 18 January 2017 Industry Update December – Stable growth in both Life and P&C A steady end to 2016 ________________________________________________________________________________________________________________ Deutsche Bank AG/Hong Kong Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, 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. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 057/04/2016. Esther Chwei Research Analyst (+852 ) 2203 6200 esther.chwei@db.com Lexie Zhou Research Associate (+852 ) 2203 6180 lexie.zhou@db.com Top picks China Life (2628.HK),HKD21.60 Buy CTIH (0966.HK),HKD16.64 Buy Source: Deutsche Bank Companies Featured China Life (2628.HK),HKD21.60 Buy Ping An (2318.HK),HKD40.35 Buy CPIC (2601.HK),HKD27.90 Buy NCI (1336.HK),HKD37.80 Buy CTIH (0966.HK),HKD16.64 Buy China Re (1508.HK),HKD1.78 Hold China Life (601628.SS),CNY26.10 Buy Ping An (601318.SS),CNY36.22 Buy CPIC (601601.SS),CNY29.02 Buy NCI (601336.SS),CNY45.76 Hold Source: Deutsche Bank Life growth was stable in Dec, ranging from -0.5% to 27.0% (Nov: -5.4% to 26.1%). We note that most life insurers maintained single-digit growth, which was to be expected as they shifted focus to 2017 jumpstart pre-sales, so should not be a concern. Despite a relatively high base in 2016 jumpstart, we believe the sector should continue to enjoy a decent jumpstart season in 2017. P&C also saw steady growth in Dec with key players at 12.8-29.9% (vs. 10.0-30.5% in Nov), thanks in part to the continued steady growth in passenger vehicle sales. We maintain our positive view on Chinese life players and see them as beneficiaries of rising bond yields. Top picks: China Life and Taiping. Life – Relatively stable Life premium growth remained stable in Dec. Ping An led Dec growth at 27.0% (vs. +26.1% in Nov), followed by PICC Group at 15.4% (-5.4%), NCI at 7.9% (+13.5%), Taiping at 6.9% (+7.8%), China Life at 6.2% (+0.2%), and CPIC at -0.5% (+2.8%). According to Taiping, Dec growth was mainly driven by individual regular premiums (+9.5% yoy). For 2016 full-year growth, Ping An led at 31.2% (vs. +31.5% in 11M16), followed by CPIC at 26.5% (+27.7%), PICC Grp at 22.1% (+22.3%), China Life at 18.3% (+18.9%), Taiping at 18.1% (+19.1%), and NCI at 0.6% (+0.3%). Ping An reported 2016 FYP growth of 40.5%, indicating 36.6% growth in 2H16 (vs. 43.1% in 1H16). CPIC reported 33.0% FYP growth, driven mainly by strong growth of 42.5% in individual FYP (1H16: 70.9% vs. 2H16: 9.0% due to high base in 2H15). P&C – Steady growth continued P&C premiums maintained steady growth in Dec, with headline growth ranging from 6.4% to 23.3% and underlying (ex-VAT impact) growth ranging from 12.8% to 30.7%. Ch Continent led Dec growth at 30.7% (vs. +20.6% in Nov), Ping An followed at 29.9% (+30.5%), Taiping at 20.1% (+39.9%), PICC at 14.8% (+19.3%), and CPIC at 12.8% (+10.0%). 2016 underlying growth was led by Ch Continent at 25.0% (vs. +24.4% in 11M16), followed by Taiping at 21.1% (+21.2%), PICC at 14.8% (+14.8%), Ping An at 13.2% (+11.3%) and CPIC at 5.7% (+4.9%). Staying positive on life on attractive valuation and strong fundamentals With the bottoming out of China’s bond yields and relatively stable equity markets, we expect the share price performance of Chinese life insurers to catch up. We reiterate our positive view on the Chinese life insurance sector which has underperformed HSCEI by ~12% since 2016, due to the concerns on investment yield and asset quality. We think these concerns are more than priced in, with the sector currently trading at 1.1x 2016E P/EV despite a strong growth outlook. Current low deposit rate (competitive yields for insurers) and rising bond yields should improve the outlook on insurers’ investment spread. Continued fund flow away from bank deposits into financial products (including life policies) should support the growth outlook for the sector. Our top picks are China Life and Ch Taiping. Investment risks include significant weakness in China’s investment markets, asset quality risks, and weaker-than-expected growth. Distributed on: 18/01/2017 13:00:45 GMT 18 January 2017 Insurance China Insurance Sector Page 2 Deutsche Bank AG/Hong Kong Dec 2016 premiums Premium snapshot Life premiums: China Life reported 2016 life premiums of Rmb430,600m (+18.3% yoy), Ping An Rmb291,264m (+31.2%), C