Date of Report: 30 September 2024
Broker Name: OCBC Investment Research
Beneficiary of Policy Support
China Pacific Insurance (CPIC) stands to benefit from the Chinese government’s recent policy measures aimed at supporting the economy and stock market. Key initiatives include:
- The People’s Bank of China (PBoC) will establish a CNY500 billion swap facility to provide leverage for brokers, funds, and insurance companies for equity investments.
- The China Securities Regulatory Commission (CSRC) and National Financial Regulatory Administration (NFRA) are encouraging long-term funds to invest in equity markets through stock index exchange-traded funds (ETFs) and insurance funds.
These measures are expected to boost market liquidity, improve investor sentiment, and provide tailwinds for CPIC’s investment income.
Premium Growth
CPIC reported 1.5% year-on-year (YoY) growth in primary premium income for its life insurance business and 7.7% YoY growth for its property and casualty (P&C) business for the first eight months of 2024. While the growth in the life segment appears modest, this is a marked improvement from the negative growth recorded from January to July 2024. The sharp 53% YoY increase in premiums for August has turned the cumulative growth positive for 2024.
Operating Trends and Investment Outlook
Despite lowering guaranteed rates for traditional insurance savings products, demand remains healthy, supported by declining bank deposit rates. CPIC’s near-term underlying operating trends, particularly for its New Business Value (NBV), are expected to remain robust:
- NBV growth of 23% YoY was recorded in the life segment for 1H24, driven by productivity gains in its agency force and improved profit margins.
- Expectations for strong double-digit NBV growth in the second half of 2024 further enhance the outlook.
Earnings Forecast and Valuation
OCBC Investment Research raised its core earnings forecast for CPIC by 6% for FY24 and 5% for FY25, driven by higher investment income expectations. The risk-free rate was lowered, and the cost of equity assumption adjusted due to a drop in the 10-year China government bond yield.
Based on these updates, OCBC has increased the fair value estimates for CPIC to HKD 26.10 (2601 HK) and CNY 31.35 (601601 CH).
ESG Updates
CPIC’s Environmental, Social, and Governance (ESG) rating was upgraded in December 2023. The company has enhanced its leadership development programs and adopted stronger business ethics practices, with executive-level oversight of its ethics framework to prevent potential misconduct.
CPIC is also a signatory to globally recognized initiatives such as the UN Principles for Responsible Investment (PRI) and the UN Principles for Sustainable Insurance (PSI). The company invests in green bonds and sustainability-linked bonds, showcasing its commitment to responsible investment practices. However, compared to peers, CPIC provides limited evidence of incorporating climate change risks into its overall risk assessment.
Conclusion:
China Pacific Insurance is well-positioned to capitalize on supportive government policies and a recovering premium growth trajectory. With strong underlying operating trends and improving ESG credentials, CPIC is poised for continued growth in the near future.
