Ping An Earnings: Chinese Insurer Beats Expectations for New Business Value

Ping An Insurance 601318 reported first-quarter total revenue and net profit rose 31% and 49% year on year, respectively, as it adopted IFRS 17. Its H shares surged 9% on April 27 following the results, boosted by optimism for the outlooks after new business value, or NBV, grew 8.8% year on year, the first positive growth in NBV since 2020. If we exclude the impact of changes in actuarial assumptions, adjusted NBV growth would have been 21% year on year, stronger still.

Although the stock market’s reaction was positive, we see Ping An’s results as largely in line with our expectation for around 10% growth in full-year NBV. Thus, we leave our earnings assumptions and our fair value estimates at CNY 60 per A share and HKD 66 per H share unchanged. H shares are undervalued relative to our fair value, trading at 0.7 times 2023 forecast embedded value.

Management noted that first-quarter agent productivity improved 37% year on year, while agent headcount was down a further 9% versus the end of 2022. NBV from the bancassurance channel surged 130% from the year-ago period. We believe Ping An’s three-year life insurance reform has begun to bear fruit and expect NBV margin to modestly improve in coming quarters thanks to gradual product mix shift toward protection-type products and low base in the second half of 2022.

The 49% year-on-year net profit growth under the adoption of new accounting rules was primarily driven by better investment return, while operating profit after tax, or OPAT, declined 3.4% year on year on a 2% contraction in the life insurance segment. We believe the divergence between net profit growth and OPAT contraction is partly due to the lagging impact of a sharp contraction in NBV in 2022 that significantly dragged down contractual service margin.