Underwriting resilience persists despite investment headwinds

PICC P&C (2328 HK) Underwriting resilience persists despite investmentheadwinds PICC P&Creported 1Q26 results, with net profitdown23.7% YoY to RMB8.63bn,slightlybelowmarket estimates;whilethecombined ratio (COR)was down0.3pct YoY to 94.2%,better-than-expected, thanks tocontinuedimprovementsin both auto and non-auto COR.The decline ofnet profit wasdue toinvestment headwinds, which caused the insurer’s totalinvestment income to drop 38.4% YoY to RMB4.6bn,andtotalinvestmentyieldfellto 0.7%(unannualized, vs.1Q25: 1.2%).Underwriting profit and net investment resultsaccountedfor 70.7%/46.5% of pre-tax income in1Q26, vs. 49.2%/56.2% in 1Q25.Net asset valueedged up2.8% from year-start to RMB293.6bnin1Q26.Lookingahead, we expectautopremium growth to slow down to a low-single digit on sluggish new vehicle sales,andCORis likely to improve on effective cost controloffset by increases in claims. Non-autoinsurance could bethe keydriver for premium growth, with underwriting profitsachieved in2026E.We maintain our forecasts of 95.1%/99.9%(unchanged)for auto/non-autoinsurance in 2026E, and expect to see continued COR improvementsfromthenon-autolines.Maintain BUY, with ourTPat HK$20 (unchanged),implying1.36x FY26E P/B. Target PriceHK$20.00Up/Downside38.3%Current PriceHK$14.46 China Insurance Nika MA(852) 3900 0805nikama@cmbi.com.hk Stock Data Auto CORimproved bydisciplinedexpensecontrol;mgmt.expects<96%annualtarget.Autoinsurance premium and insurance service revenuewas flat/modestly up2.3%toRMB71.7bn/RMB76.1bn in 1Q26. The flattish1Qpremium growth wasmainlydue to sluggish new vehicle sales in 1Q26, underthe backdrop ofa scale-back of newcarpurchase tax incentives.Average ticket size was marginally down affected byastructural shiftgivena lower share of new car sales (i.e. new car underwritten premiumis at ~1.6x of used car per mgmt.)partiallyoffset bya higherNEV penetration.Lookingahead, we expect catalysts for auto insurance incl. 1) a rebound in averageticket size;and 2) the convergence of NEV claims ratio toward the average level of fuel vehicles.We maintain our auto COR forecastat 95.1%in 2026E,reachingmgmt.targetof <96%. Non-auto comprehensive reformstarted to bearfruitinUWprofitability.Non-autopremiumincreased2.4% YoY to RMB111.3bn, with premiums from A&H, liability andcommercial property up 6.5%/4.6%/0.3% YoY, offset by adropin agriculture (-4.3%).A&Hwas thekey driver for non-auto premium growth and COR improvement in 1Q26andaccording tomgmt, expense ratiosforenterprise commercial property and liabilityinsurance fell~4pct YoYin 1Q26thanks to effective expense controls.Withmore non-auto linesfurtherstrengtheninginexpense discipline, mgmt. expected that there couldbe at least 0.5pct improvementin overallCORover the next three years. We maintainour non-auto COR forecastat 99.9%in 2026E, driven by a broad-based improvement.Totalinvestment income weighed by short-term market headwinds;mgmt. Source: FactSet expectsto increasetheallocation inbonds.Total investment income dropped 38.4%YoY to RMB4.6bn, dampening the total investment yield to 0.7% (unannualized) in1Q26(1Q25: 1.2%).Mgmt. noted in the call thatbond allocations increased in 1Q26 tocapture the periodic peak in long-term yields, and will seize opportunitiesin lengtheningthe asset effective duration (1Q26: 9.93yrs, vs. effective duration on liability of 13.56yrs)through scaling upitslong-termbond allocations.Ontheequity front, the insurerwillfocus moreon high-dividend and value stocks tostabilizetheinvestment return outlook. Auditor: Deloitte Related reports: 1.PICC P&C (2328 HK)-3Q25 review:dualstrength in underwriting andinvestment income, Nov 4, 2025 2.PICC P&C (2328 HK)-Robust 1Hdelivery of CoR; overseas expansionyields to a second growth trajectory,Sep 1, 2025 Valuation:The stock is currently trading at0.91x FY26E P/B,closeto its 2-yearmean-1STD,with a yield at 5.7% (CMBI est). In 1Q26, net profit under the old accountingstandard recorded a positive YoY increase according to mgmt,which set the base forthe company’s dividend distributionand laid solid foundation for DPS growth in 2026E.We seekeycatalystsforre-ratingincl.1)arebound in average ticket sizeofautoinsurance; 2) new vehicle sales increaseupontherollout of new purchase taxincentives; 3)abroad-based COR improvement across non-auto insurance lines.Maintain BUY,with ourtargetpriceatHK$20(unchanged), implying1.36x FY26E P/B. 3.PICC P&C (2328 HK)-1Q25 CoRoutperformed, Apr 15, 2025 4.PICC P&C (2328 HK)-OptimizedCoRguidance beat expectations, Apr1, 2025 5.PICC P&C (2328 HK)-3Q CoR missdragged by non-auto claims, Oct 312024 Focus Charts Source: Company data, CMBIGM Source: Company data,Bloomberg,CMBIGM estimates Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the contentof this research report, in whole or in part, certifies that with respect to the securities or issuer that the analyst covered in this report: (1) all of the views expre