China Insurance Sector :Aug premiums - Life mixed; P&C growth moderates

Life growth a mixed bag, P&C moderates 。

    Aug life premium was mixed, with growth ranging from -41.4% to 22.9% yoy (vs -24.6% to 17.5% yoy in Jul). Ch Taiping led at 22.9%, driven by strong agency sales which more than offset decline in single premium bancassurance sales. NCI and PICC Group remained weak likely due to their heavy dependence on bancassurance. China Life and CPIC saw yoy growth for the first time in recent months. P&C growth moderated but remained robust with growth ranging from 10.6% to 20.8%. We maintain our positive view on continuous growth recovery (Life) and bottoming out of underwriting cycle (P&C). Top picks are CPIC, Ch Taiping and PICC P&C.

    Life - Mixed with Ch Taiping leading growth

    Listed life insurers (except NCI and PICC Group) recorded positive growth in Aug, with Ch Taiping leading at 22.9% yoy (vs. 9.7% in Jul), followed by Ping An at 14.1% yoy (+17.5%), China Life at 2.9% yoy (-19.7%), CPIC at 0.1% yoy (-2.8%), NCI at -8.0% yoy (-12.0%) and PICC Group at -41.4% (-24.6%). Based on Ch Taiping’s disclosure, Aug growth was driven by strong agency (+47.6% yoy), which more than offset a 5.4% yoy decline in bancassurance. On YTD basis, PICC Group was the strongest at 42.9% yoy (vs. 55.6% for 7M14), followed by Ch Taiping at 22.9% yoy (+22.9%), NCI at 22.2% yoy (+25.2%), Ping An at 21.0% yoy (+21.6%), CPIC at 5.6% yoy (+6.1%) and China Life at -3.6% yoy (-4.4%). P&C - Growth moderates, but remains robust P&C growth slowed for all four insurers in Aug but remains robust with double-digit growth across the board. Ping An led with 20.8% yoy (vs 27.9% yoy in Jul), followed by CPIC at 16.2% yoy (+18.5%), PICC at 11.2% yoy (+15.5%), and Ch Taiping at 10.6% yoy (+16.6%). YTD premium growth were relatively stable, with Ping An leading at 26.9% yoy (vs. 27.8% yoy in 7M14), followed by Ch Taiping at 19.3% yoy (+20.6%), CPIC at 14.6% yoy (+14.4%) and PICC at 14.1% yoy (+14.5%). We are optimistic about the outlook of P&C sector as we believe the underwriting cycle should bottom out in the next 12 months, with smaller insurers (including CPIC) under pressure to improve underwriting profitability. Top picks: CPIC, Ch Taiping and PICC P&C 。

    We are positive on the outlook for both Life and P&C sector. We reiterate our positive views on Chinese life insurers on sector VNB growth recovery and improving investment return environment. Sector valuation at 1.1x 2014E P/EV is unjustified and yet to price in the sector recovery. We expect the P&C underwriting cycle to bottom out in the next 12 months driven by easing competition and earnings outlook to improve in 2H14E. Our top picks are CPIC, Ch Taiping and PICC P&C. We think CPIC’s strong capital position allows it to better endure market volatilities and we continue to favor Ch Taiping as an undervalued recovery play. We like PICC P&C as we believe it is the most direct beneficiary of the improved outlook of P&C underwriting cycle. We also have Buy ratings on NCI, Ping An and China Life and maintain our Hold rating on PICC Group given its inferior agency business. Investment risks include significant correction in A-share markets, China-related risks, unfavorable regulatory changes, asset quality deterioration and a weaker-than-expected VNB growth or underwriting margin.