PICC P&C: Combined Ratio Continues to Recover, Margin Outperforms Peers

PICC P&C’s 02328 IFRS-17-based total revenue and net profit in the first quarter grew 9% and 22%, respectively, year on year, with its underwriting margin outperforming peers. Notably, the combined ratio, or CR, recorded a solid improvement of 0.9 percentage point to 95.7% against the year-ago period. Performance is on the high end of prior management guidance. As results were largely in line, we retain our fair value estimate at HKD 11 per share. The shares have rallied about 20% since late March when management provided very positive margin guidance for 2023. Trading at 0.8 times our forecast 2023 book value, the stock remains undervalued and we continue to like PICC P&C for its strong fundamentals and dominant position in an oligopolistic market. The company commanded about 33% of total premium and 50% of industry profit in 2022.

The healthy profit growth was attributable to the 9% year-on-year growth in insurance service and the improved underwriting margin as well as the 15% increase in investment return due to the adoption of IFRS 9. Net profit growth would show an easing to 14% year on year if not adopting the new accounting rules.

As the first-quarter auto claim frequency rate was largely flat from the year-ago quarter, we suspect the auto combined ratio remained stable. Along with normalized business activities in coming quarters, we expect full-year auto CR to increase but should stay below the 97% level, thanks to its leading scale, strong cost management, and distribution strength in the auto insurance market. With PICC P&C’s continued efforts to better risk pricing and to clean up historical high-risk non-auto insurance business, we expect ongoing product innovation and economic recovery to support improvement in non-auto insurance CR to below 100% in 2023.