April premium – Moderated growth for both Life and P&C

Deutsche Bank Markets Research Asia Hong Kong Banking / Finance Insurance Industry China Insurance Sector Date 19 May 2017 Industry Update April premium – Moderated growth for both Life and P&C Slower growth in Life and P&C ________________________________________________________________________________________________________________ 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) 083/04/2017. Esther Chwei Research Analyst (+852 ) 2203 6200 esther.chwei@db.com Lexie Zhou Research Analyst (+852 ) 2203 6180 lexie.zhou@db.com Top picks CPIC (2601.HK),HKD28.55 Buy China Life (2628.HK),HKD24.10 Buy Source: Deutsche Bank Companies Featured China Life (2628.HK),HKD24.10 Buy Ping An (2318.HK),HKD46.10 Buy CPIC (2601.HK),HKD28.55 Buy NCI (1336.HK),HKD39.00 Hold CTIH (0966.HK),HKD19.28 Buy PICC Group (1339.HK),HKD3.27 Hold PICC P & C (2328.HK),HKD12.90 Buy China Re (1508.HK),HKD1.75 Hold China Life (601628.SS),CNY26.22 Buy Ping An (601318.SS),CNY40.63 Buy CPIC (601601.SS),CNY27.83 Buy NCI (601336.SS),CNY47.85 Hold Source: Deutsche Bank Life premiums recorded moderated growth of -17.2-36.1% (vs. 4.4-61.9% in March). Ping An led at 36.1%, with strong FYP (ex-Grp) growth of 49.2%, which is likely driven by the agency channel and hence should bode well for VNB growth. Based on Ch Taiping’s disclosure, the slower growth was mainly dragged by decline in bancassurance single premium (-83.5%), which is of low margin and should not be a concern. P&C premium growth also moderated, with key players in the 7.8-28.0% range (vs. 9.0-35.3% in March), likely due to slow auto sales. We maintain a medium-term positive view on China insurers, but flag near-term limited yield upsides. Top Picks: CPIC and China Life. Life – a moderated month Ping An led April growth at 36.1% (vs. +45.9% in March), followed by PICC Group at 27.9% (+21.0%), CPIC at 13.3% (+33.0%), Taiping at 11.1% (+61.9%), China Life at 0.9% (+31.1%) and NCI at -17.2% (+4.4%). Ping An’s growth is mainly driven by strong FYP (ex-Grp) growth of 49.2%, which is likely due to an expanding agency channel, and hence should bode well for VNB growth. According to Ch Taiping’s disclosure, the slower growth was mainly dragged by decline in bancassurance single premium (-83.5%), which is of low margin and should not be a concern. In terms of 4M17 performance, Ping An led at 40.0% yoy (vs. +40.7% in 1Q17), followed by CPIC at 39.7% (+43.1%), Taiping at 33.0% (+35.9%), China Life at 20.0% (+22.1%), PICC Group at -5.7% (-7.0%) and NCI at -19.6% (-20.0%). P&C – slightly moderated growth P&C business recorded slightly moderated growth in April, with headline growth ranging from 1.7% to 20.8% and underlying (ex-VAT impact) growth ranging from 7.8% to 28.0% (vs. 9.0-35.3% in March). On a monthly basis, Ping An led at 28.0% yoy (vs. +35.3% in March), driven by strong non-auto premiums (+126.0%) on a low base, followed by Ch Continent at 27.7% (+24.2%), PICC at 16.3% (+19.2%), Taiping at 11.4% (+16.0%) and CPIC at 7.8% (+9.0%). On a YTD basis, Ping An led at 30.0% (vs. +30.6% in 1Q17), followed by Ch Continent at 21.8% (+20.1%), PICC at 15.5% (+15.2%), Ch Taiping at 12.5% (+12.9%) and CPIC at 7.9% (+7.9%). Staying positive on Life on attractive valuation and strong fundamentals We believe that the current valuation of 0.9x 2017E P/EV for life insurers (assuming a 4.0% long-term investment return) remains attractive. We view current low deposit rates (competitive yields for insurers) and rising market yields as favorable for insurers’ investment spreads. However, given the recent weakness in A-share markets and limited near-term yield upside, we prefer insurers with a relatively conservative book and strong capital position. As such, we prefer CPIC and China Life. CPIC has significantly underperformed YTD, which we believe is unjustified. The shares now offer the largest upside potential and most attractive risk reward, in our view. We continue to like China Life for its conservative balance sheet and we believe that its franchise strength is underappreciated by the market. We also have Buy ratings on Ch Taiping and Ping An. Our top picks are CPIC and China Life. Investment risks include significant investment market weakness, asset quality risks, a sharp dec