Company Reports

We retain our fair value estimate for China Life at HKD 20 per H-share (CNY 19 per China A-share) and China Pacific Insurance, or CPIC at HKD 30 per H share (CNY 26 per China A-share), following their first-quarter results, which reported new business value, or NBV, growth at 26% and 31%, respectively, year on year on a like-for-like basis. We leave our major assumption largely unchanged, as we expect full-year NBV growth to moderate to mid- to high-teen level, as a result of high base in the second and third quarters created by the strong sales of 3.5% pricing products in the year-ago period. The stronger-than-expected growth was attributable to lower product pricing rate after the regulatory cut starting from August 2023; longer payment duration of insurance policies; and double-digit growth in agent first-year premium. Bancassurance NBV also reported strong growth on lower commission rate despite falling first-year premium. We expect China Life will see less negative base effect in coming quarters as the company did not actively sell the 3.5% pricing rate products in 2023, when compared with CPIC which reported over 50% year-on-year NBV growth in the second and third quarters of 2023. As China Life started to put more strategic focus to bancassurance sales after margin improvement on lower commission rates in 2024, we expect the company should have more room to expand its bancassurance business.

We retain our fair value estimates for China Life at HKD 20 per H share (CNY 19 per A share) and New China Life, or NCI at HKD 26 per H share (CNY 23 per A share), following their 2023 results, which saw 34% and 59% year-on-year declines in net profits to CNY 21 billion and CNY 8.7 billion, respectively. As China Life was not actively selling the popular savings type products and its agent reform was less aggressive than peers, the company reported lower-than-peer net book value, or NBV, growth at 14% in 2023, before the changes in actuarial assumptions. In contrast, growth in NCI's NBV exceeded our expectation at 65% year on year. But it was largely driven by the 3.5% pricing traditional life insurance products, which were pulled off shelves by regulators in August 2023. In light of tightened bancassurance expense control and rising interest spread risks for life insurers amid falling interest rate cycle, we expect such robust NBV growth is not maintainable. Thus, we expect NBV growth for Chinese life insurers will decelerate to single-digit levels in 2024.

As the largest and oldest state-owned life insurer, China Life Insurance enjoys a reputable brand, giving it a leg up in sales of commodity like insurance products. We think China Life is well positioned for ongoing urbanization and the government’s increasing efforts to boost rural residents’ welfare. The large scale and strong foothold in underpenetrated rural markets translate to low administration expense for China Life.

With new business value, or NBV, growth tracking our assumptions, we retain our fair value estimate for China Life at CNY 19 per A-share and HKD 20 per H-share. The H-shares are attractive, trading at a sharp discount to our fair value estimate and the A-shares. We stick to our full-year NBV growth projection of 14%, which implies second-half NBV declines by two thirds from the first half. This would be due to the weaker sales momentum after the guaranteed rate was cut to 3% from 3.5% starting August, as well as curbed bancassurance sales. Both measures are the result of greater regulatory scrutiny as policymakers continue to focus on improving industry health.

China Life‘s year-to-Sept. 30 year-on-year growth in premium slowed to 4.5% from 5.6% in August. As the first insurer to report monthly premium growth, the performance generally tracks our expectations. The year-on-year contraction in September premium narrowed to 7% from 10% in August on low base in the year-ago period. We expect slowing sales for other Chinese life insurers in September and October due to weakened product demands after the last-batch sales of 3.5% guaranteed rate savings products in July. We also expect ongoing regulation of bancassurance sales (an arrangement between a bank and an insurance company through which the insurer can sell its products to the bank's customers) to adversely affect September and October sales, but the impact should be small given these two months usually report weak sales. Despite the industrywide trend of slowing sales, we expect Ping An and PICC Life to see less downward pressure supported by lower base in the second half of 2022. We expect third-quarter new business value, or VNB, to decelerate significantly from the second quarter’s level, but fourth-quarter growth should rebound on low base and the resumption of bancassurance sales.

Following largely in-line results, we retain our fair value estimate for China Life at CNY 19 per A share and HKD 20 per H share. With the H shares trading at a sharp discount to the A shares, we prefer the H share over the expensive A share. First-half new business value, or NBV, growth increased to 19.9% year on year from the 7.7% growth in the first quarter, beating our expectation for about 15.0% growth. NBV growth was driven by the 13% and 122% respective year-on-year growths in agent and bancassurance channels, as customers rushed to buy the last batch of high-yield savings products before the pricing rate cut in end-July.

We expect the upcoming interim earnings results to show that new business value, or VNB, growths of China’s insurers accelerated between 15% and 35% in the first half of 2023, from 8% to 17% year on year in the first quarter of 2023, as customers rushed to buy high-yield savings products before the pricing rate cut by end-July. However, the weaker equity market performance and falling interest rates in the second quarter are likely to weigh on net profits and shareholders’ equity under the new accounting rules. Nevertheless, we think downside risk to H-share prices is contained, with the H-shares of Chinese insurers trading at a historical low of 0.2 times to 0.6 times forward price/embedded value, or EV.

As the largest and oldest state-owned life insurer, China Life Insurance enjoys a reputable brand, giving it a leg up in sales of commoditylike insurance products. We think China Life is well positioned for ongoing urbanization and the government’s increasing efforts to boost rural residents’ welfare. The large scale and strong foothold in underpenetrated rural markets translate to low administration expense for China Life.

We retain our China Life earnings forecast and fair value estimates at HKD 20 for the H-shares, and CNY 19 for the A-shares, following the insurer’s briefing on the impact of the new accounting standards. We think the key messages confirm our expectations. China Life’s H-shares are trading at an attractive 0.3 times 2023 price/embedded value ratio versus 0.8 times for A-shares. We would buy the H-shares over the A-shares.

China Life's first-quarter IFRS 17 based total revenue and net profit increased 18% and 78% year on year, respectively, while new business value, or NBV, growth was slightly ahead of our expectation at 7.7% year on year. The change in accounting standards in the insurance industry is leading to much of the bottom-line increase in the past quarter. We retain our full-year NBV growth projection at around 10% as we have yet to see meaningful recovery in demand for protection type products. Hence, given results were largely in line, we retain our fair value estimate for China Life at CNY 19 per A share and HKD 20 per H share. With the H share trading at a sharp discount to the A-shares, we are buyers of the H share but would sell the A-share.

We lower our fair value estimate for China Life to HKD 20 per H-share after its 2022 results, reflecting lower projections for new business value growth and investment returns in 2023. The results were weaker than expected, with full-year 2022 total revenue and net profit growth declining 3.8% and 37% respectively from 2021. The profit decline was mainly driven by sharply lower realized investment gains. NBV declined 20% from 2021. The contraction was smaller than peers including Ping An and CPIC, but still misses our expectation for sub-20% growth. Decelerating NBV growth in the fourth quarter was due to heightened coronavirus restrictions and shifting focus to preparations for its 2023 New Year sales campaign. The fourth quarter also saw a wider quarter-on-quarter contraction in agent headcount to 7% from about 5% in the first three quarters of 2022.

As the largest and oldest state-owned life insurer, China Life Insurance enjoys a reputable brand, giving it a leg up in sales of commoditylike insurance products. We think China Life is well positioned for ongoing urbanization and the government’s increasing efforts to boost rural residents’ welfare. The large scale and strong foothold in underpenetrated rural markets translate to low administration expense for China Life.

We retain our fair value estimate for China Life at CNY 20 per A share and HKD 21 per H share after its third-quarter results. The results were mixed, which highlighted accelerating year-on-year growth in first-year premium in the third quarter, contrary to the double-digit decline of peers. Agent force also looked steadier than peers, which declined only 9% from 2021, versus the double-digit declines of peers in the first half. Agent head count dropped 3% to 720,000 from mid-2022, improving from the 5% and 4% respective declines in the first and second quarter. However, nine-month new business value, or NBV, declined further by 15.4% against the year-ago period, versus the 13.8% decline in the first half. We believe this was attributable to the rising contributions from low-margin products sold in the bancassurance channel, indicating that protection demands remained sluggish. Declines in industrywide agent head count continued to narrow over the past three quarters, but management believes it is still early to predict when the agent head count will bottom out, given growing macroeconomic uncertainties.

We retain our fair value estimate for China Life Insurance at CNY 20 per A share and HKD 21 per H share after the company released second-quarter results that were were slightly above our expectation. The H shares remain significantly undervalued, trading at a historical trough valuation of 0.2 times forward price/embedded value on market concerns about further weakening investment return amid heightened stock market volatility and continuous pressure in agent force reform. We expect the company's distribution strength in the bancassurance channel and leading position in rural areas and low-tier cities should help buffer against the weakness in the agent channel. China Life reported better-than-peers performance in agent head count and first-year premium growth in the second quarter. First-year regular premium per agent per month increased 60% year on year. As agent new premium resumed growth in the second quarter, we expect agent head count to lead peers in stabilizing in the second half.

As the largest and oldest state-owned life insurer, China Life Insurance enjoys a reputable brand, giving it a leg up in sales of commoditylike insurance products. We think China Life is well positioned for ongoing urbanization and the government’s increasing efforts to boost rural residents’ welfare. The large scale and strong foothold in underpenetrated rural markets translate to low administration expense for China Life.

We reduced our fair value estimate for China Life to CNY 20 from CNY 21 per A-share and to HKD 21 from HKD 23 per H-share after the company reported first-quarter results, including a 47% decline in net profits to CNY 15.2 billion. This was primarily attributable to a sharp decline in total investment income from a high base in the year-ago period. Net investment return was largely steady at 4% versus 4.08% in the year-ago period. Total investment return narrowed 2.6 percentage points to 3.88%. Total investment income contracted CNY 20.6 billion from the year-ago quarter to CNY 44.6 billion versus the realized equity investment gain of about CNY 20 billion in the first quarter of 2021. Positively, the 14.3% year-on-year decline in new business value slightly exceeded our expectations. This validated our view that China Life’s traditional strength in the bancassurance channel and early preparation last October for its New Year sales campaign for 2022 translated to less downward pressure than industry peers in the first half. Despite a better-than-peer net interest margin performance in the first quarter, we expect the company to face additional headwinds from the upcoming rules on managing life insurance product sales set by the regulator.

Being the largest and oldest state-owned life insurer, China Life enjoys a reputable brand, giving it a leg up in sales of commodity-like insurance products. It boasts an extensive network domestically. Despite low profitability in these areas, we think China Life is well positioned for ongoing urbanization and the government’s increasing efforts to boost rural residents’ welfare. The large scale and strong foothold in underpenetrated rural markets translate to low administration expense for China Life.

We maintain our fair value estimate for China Life at CNY 21 per A-share and HKD 23 per H-share after the 2021 results as the 1.3% in net profit growth from 2020 was largely in line with our expectation. Fourth-quarter net profit declined 24% from the year-ago period and we attributed this to weakening investment returns and sharp increase in asset impairment allowance. New business value, or NBV, dropped 23% from 2020, slightly missing our expectation for a 22% decline. Embedded value, or EV, increased 12.2% from 2020 on the back of resilient growth in expected return of in-force business and better-than-expected negative impact of operating variances despite smaller contribution from NBV.

Being the largest and oldest state-owned life insurer, China Life enjoys a reputable brand, giving it a leg up in sales of commodity-like insurance products. It boasts an extensive network domestically. Despite low profitability in these areas, we think China Life is well positioned for ongoing urbanization and the government’s increasing efforts to boost rural residents’ welfare. The large scale and strong foothold in underpenetrated rural markets translate to low administration expense for China Life.

Being the largest and oldest state-owned life insurer, China Life enjoys a reputable brand, giving it a leg up in sales of commodity-like insurance products. It boasts an extensive network domestically. Despite low profitability in these areas, we think China Life is well positioned for ongoing urbanization and the government’s increasing efforts to boost rural residents’ welfare. The large scale and strong foothold in underpenetrated rural markets translate to low administration expense for China Life.