Ping An Securities: Insurance industry valuations and institutional holdings are still at the bottom of history. Focus on the sector's long-term allocation value

The Zhitong Finance App learned that Ping An Securities released a research report saying that the attractiveness of competitive products is declining and residents' demand for savings is strong, driving the probability of new 23H1 life insurance orders and NBV increasing, and the results for the full year of 2023 are also expected to increase. Liquidity remains reasonable and abundant, the equity market has recovered moderately, long-term interest rates fluctuate at low levels, and the asset side is expected to improve. Currently, industry valuations and institutional holdings are still at the bottom of history, and beta attributes will help the insurance sector repair the bottom of valuation. It is recommended to focus on the long-term allocation value of the sector, and individual stocks suggest giving priority to China Taibao (601601.SH) and Xinhua Insurance (601336.SH).

Incident: The insurance industry and listed insurers have released premium data for the first half of 2023. Overall, the first half of the year showed the characteristics of a high increase in life insurance premiums and a high and low growth rate of industrial insurance premiums.

Ping An Securities's main views are as follows:

Life insurance business: There was a significant increase in new orders from major listed insurers in 23H1. Savings insurance is driving an improvement in total new orders. It is expected that the NBV of listed insurers is growing, but the increase in new orders is higher than the NBV increase, and the increase in new 23Q2 orders and NBV is higher than 23Q1.

In recent years, yields on preferential storage products such as bank deposits and cash balances have continued to decline; since April '23, some stock banks and small to medium banks have lowered interest rates on bank deposits; major state-owned banks have begun to lower interest rates one after another in May, and interest rates on short-term savings and medium- to long-term deposit products have generally declined. At the same time, bank wealth management products are shifting to net worth, and yields are declining, and the attractiveness of competitive savings insurance products has decreased markedly. At the same time, residents' risk appetite is low, their willingness to save capital remains high, and demand for savings insurance continues to be strong.

The life insurance business of the major listed insurance companies on 23H1 all achieved a growth rate of original premiums — industry (+13.8%) > Taiping (+9.4%) > Ping An (+8.3%) > China Life (+6.9%) > Xinhua (+5.1%) > Taibao (+4.0%); centralized sales of products with a predetermined interest rate of 3.5% accelerated the release of residents' savings demand. The original premium growth rate was higher in June — Human Insurance (+77.2%) > Taibao (+39.0%) > Taiping (+37.3%) Industry (+32.0%) >Xinhua (+24.2%) ) > Ping An (+21.0%) > China Life Insurance (+18.3%). Looking at the total number of new 23H1 orders, Ping An's 95.5 billion yuan (YoY +25.5%), and Taibao 29.7 billion yuan (YoY +14.2%), including Taibao Personal Insurance's new orders of 19.4 billion yuan (YoY +31.9%), Ping An's new personal business orders of 84.3 billion yuan (YoY +30.0%), and 24.8 billion yuan (YoY +38.8%). Judging from the growth rate of total new orders by quarter, the growth rate of new orders in the 23Q2 single quarter was higher than that of 23Q1 — People's Insurance and Ping An 23Q1 total new order growth rates of +1.9% and +9.0% respectively, while the 23Q2 total new order growth rates were +116.1% and +56.6% respectively.

Industrial insurance business: The growth rate of car insurance premiums has declined. Under the base effect, the comprehensive cost rate is expected to be under pressure.

Since February, the growth rate of industrial insurance premiums has shown a trend of high and low. The cumulative premiums of 23H1's major listed insurers continued to grow — Taibao (+14.3%) > Industry (+9.3%) > Human Insurance (+8.8%) > Ping An (+5.0%); 23H1 Auto Insurance's growth rate was lower than Industrial Insurance — Ping An (+6.1%) > Human Insurance (+5.5%) > Industry (+5.5%) > Taibao (+5.4%).

Regulatory requirements lower product reservation interest rates, which may affect product sales in the short term, but the new 23H1 life insurance policy and NBV have achieved high growth, and there is a solid foundation for annual performance growth; at the same time, residents' demand for capital protection savings is strong, and the long-term impact is expected to be limited overall.

According to a report by the Shanghai Securities News, regulations require insurers to remove personal insurance products with a scheduled interest rate higher than 3% by the end of July. Starting in August, the maximum predetermined interest rate for ordinary personal insurance products will be 3%. Against the backdrop of declining long-term interest rates, a reduction in scheduled interest rates is expected to reduce insurers' debt costs and ease the pressure to match assets and liabilities over a long period of time. Residents' demand for capital insurance savings is still strong, and the long-term impact on the demand side is limited. However, insurers vigorously promoted savings insurance sales, and customer consumption accelerated in the short term. After switching products, they may face problems such as insufficient customer demand release and agent sales adaptation period. There is some uncertainty about the restoration of new 23Q3 orders. However, the new 23H1 life insurance policy and NBV have achieved high growth, and there is a solid foundation for annual performance growth.

Risk warning: 1) The equity market fluctuates greatly, and beta attributes have led to increased market fluctuations in the sector. 2) The negative impact of product switching exceeded expectations. The number of agents continued to decline, the qualitative improvement fell short of expectations, and new orders and NBV fell short of expectations. 3) Long-term interest rates declined beyond expectations, putting pressure on maturing assets and the allocation of new assets.