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2 Attractive HK Insurance Stocks After PBOC Rate Cuts
Aspire, Thought Leaders | 28 September 2015
By: Louis Wong
Articles (12) Profile

Two weeks ago, I talked about Chinese banking stocks and the challenges they are facing, such as weak earnings growth, deteriorating asset quality and narrowing net interest margins. In comparison to banking stocks, China’s insurance stocks have fewer woes to worry about.

With five successive rate cuts by the People’s Bank of China to stimulate the economy and to stabilise the stock market, insurance policies in China now look more attractive to cash-rich investors as they offer better returns than bank deposits. According to statistics from the China Insurance Regulatory Commission (CIRC), total original premiums for China’s insurance industry reached 1.53 trillion yuan in the first seven months of this year, up 19.9 percent from a year earlier.

For the life insurance industry, total original premiums reached 1.04 trillion, up 24.2 percent year-on-year. While for the property and casualty insurance industry, total original premiums were 493 billion yuan, up 11.7 percent year-on-year.

China Life: Increase of Agents and First-year Premiums

In addition to the low-interest-rate regime, strong agency growth also helped to speed up the growth of total original premiums for China’s insurance industry.  Take China Life (2628.HK) as an example, as at 30th June 2015, the Company had a total of 949,000 exclusive individual agents, an increase of 27.7 percent from the end of 2014.

During the first half of 2015, gross written premiums from the exclusive individual agent channel increased by 14.3 percent year-on-year. First-year premiums for policies with insurance duration of more than one year increased 55.3 percent year-on-year. First year regular premiums increased by 54.9 percent year-on-year, and first year regular premiums with 10 years or longer payment duration increased by 43.4 percent year-on-year.

Out of all the first-year regular premiums, the percentage of those with five years or longer payment duration and those with 10 years or longer payment duration were 90.85 percent and 52.89 percent respectively, and renewal premiums increased by 4.9 percent year-on-year.

Ping An: Customer Migration Contributing Significantly to Growth

Ping An (2318.HK), the seco9nd largest life insurer in China, has also expanded its agency network aggressively. As at 30th June 2015, the number of individual life insurance agents increased to nearly 800,000, up by 25.5 percent from the beginning of the year. Its agent productivity increased substantially with first-year written premiums per agent per month up by 23.6 percent year-on-year.

Value for new business (VNB, a key gauge for future profitability) grew by 44.3 percent in the first half of the year over the same period last year.  Besides expanding the agency channel, Ping An continues to promote the migration of customers among its core finance businesses, namely life insurance, property & casualty insurance, retail banking and credit card business.

In the first half of 2015, the number of migrated customers was approximately 5.99 million and 36.5 percent of new customers were from customer migration. The company also actively promotes the migration from internet finance users to core finance customers.

In the first half of 2015, new customers who held traditional products amounted to over 820,000 through migration from the Company’s internet finance subsidiaries such as Wanlitong, Lufaz, Ping Au Pay, PA Haofang and PA Haoche.

Stock Market Crash Will Prod Insurers to Readjust Allocations

With regards to insurance funds investment, according to the statistics of the CIRC, bank deposits, bonds, equities and equities funds, other investments accounted for 25 percent, 35.01 percent, 13.56 percent and 26.43 percent of total insurance funds investment respectively in the first seven months of 2015.

With 60 percent of insurance funds invested in rate-sensitive assets, investment yields for insurers could come under pressure due to lower interest rates, but the negative impact will be gradual and will be offset by profits from new policies. Additionally, China’s insurers can pass on the fall in investment yields by cutting policy dividends.

Admittedly, the tumbling stock markets will have a negative bearing on insurers’ earnings and their embedded value. Due to the booming market, most insurers had increased the allocation in equity assets in the first half this year. Take China Life as an example, the percentage of equity investment allocation increased to 16.85 percent from 11.23 percent as at the end of 2014.

The percentage of bonds and the percentage of term deposits decreased from 44.77 percent to 41.51 percent and from 32.85 percent to 29.26 percent respectively.  As market fluctuations intensify, insurers will actively respond to the capital market by continuously rebalancing their investment portfolios.

Louis Wong will be speaking at the Shares Investment Conference 2015 on 24 October 2015 (Saturday).

Still worried about when and how much would the US Federal Reserve hike interest rates? Do you have burning questions that you want to ask regarding the China economic slowdown and SHCOMP nosedive in June? Are you confused if any of the external factors from other countries in Asia will affect your Singapore stocks portfolio?

Catch renowned investors and speakers with rich experience in the stock markets, who have had witnessed multiple stock market crashes and global recessions over the years at Shares Investment Conference 2015!

Speaker profiles

1. Dr Chan Yan Chong, a renowned investor with more than 25 years of experience and the MBA programme director & associate professor of business school at the City University of Hong Kong.

2. Kevin Gin (CFA), the Founder and Principal of Alpha Capital. He was the former COO for CITIC Securities, Head of Singapore and Regional Real Estate Research for Kleinwort Benson Securities Asia (now part of Credit Suisse) and Head of Greater China Property Research with Yuanta Securities (Hong Kong)

3. Louis Wong, one of the most experienced fund managers in Hong Kong. He has over 25-years of solid experience and track record in the financial market. He was awarded Best Financial Analyst for 3 years by the Putonghua Channel of Radio Television Hong Kong and is also a part-time instructor of several investment courses in various Hong Kong universities.

4. Daniel Loh, an investment coach that specialises in equities and derivatives trading, he appears regularly on local TV financial programmes like “Good morning Singapore” and “Hello Singapore”.

Louis is one of the most experienced fund managers in Hong Kong and has more than 25 years of solid experience in the financial markets. He employs a strict criteria for choosing his stocks, which is deeply insistent on having a thoughtful and sophisticated analysis of the company before making any investment decision.

Please click here for more information about this author.

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