PICC P&C’s Q2 Posted Across-the-Board Improvement in Underwriting Margins

PICC P&C’s second-quarter results reflected the company’s scale advantage, strong cost management, and distribution strength, which translated to a better-than-expected improvement in underwriting profits despite challenging macroenvironment, in our view. First-half underwriting profits grew 52% from the year-ago period, with the second-quarter underwriting profits surging 160% against last year on reduced traffic and related claims during COVID-19 lockdowns, and a low base in the second quarter of 2021. Six-month combined ratio, or CR, improved 1.2 percentage points from the year-ago period, to 96% on 1 and 0.2 percentage point reductions in expense ratio and claim ratio to 24.5% and 71.5%, respectively. First-half combined ratios of auto and nonauto insurance business reported 1.3 and 1.1 percentage point declines to 95.4% and 96.8%, respectively. Given the better-than-expected improvement in auto insurance margin, we reduce our 2022 auto CR assumption by 50 basis points to 96.5% and leave our 2022 nonauto CR assumption unchanged at 99.8% as we expect higher natural disaster-related losses in the second half to drive 2022 nonauto CR higher. The assumption changes result in an increase in our fair value estimate to HKD 11 from HKD 10.50 per share.