Ping An Alert:3Q16,Key takeaways from conference call
Confident on 2017 outlook.
Ping An held a conference call this afternoon to update their 3Q16performance. Management is satisfied with their performance so far in 2016,and is confident on 2017 outlook. Key takeaways are as follow:On life insurance, the strong net profit growth in 3Q16 (60+% yoy) was mainlyattributable to 1) a better equity market, 2) profit contribution from businessacquired in 2015 and 1H16, and 3) experience gains on better actualexperience than assumptions. Management attributed the strong 3Q16 VNBgrowth to higher margin products and improvement in product mix, whichshould be a sustainable trend going forward. In terms of the plans for 2017jumpstart sales, the strategy will be similar to previous years with focus onsavings products in 1Q. The management noted the steady agency expansion(+20+% YTD with agent number reaching 1.1-1.2mn) will bode well forbusiness growth in 2017.
On P&C insurance, the company attributed the improvement in 3Q16underwriting to 1) slight improvement in auto insurance and 2) better-thanindustryperformance of properties insurance, which also saw someimprovement vs. last year. Overall, the combined ratio for 2016 should berelatively stable vs. last year. Ping An has shifted some guarantee insurancebusiness back to P&C (however in different business model), which explainedthe pickup in non-auto premium growth in 3Q16 (+12.0% vs. -32.4% in 1H16).
On investments, the strong net investment yield of 6.0% in 9M16 was mainlyboosted by dividend income from funds, which may not be sustainable. Giventhe low rate environment, the company expects some downward pressure onnet investment yield going forward. However, management expects thedecline to be gradual given 1) early allocation to long-term assets to lock inhigh yield 2-3 years ago, 2) new money allocation to long-term bond (govtbond and credit bonds), high-dividend blue-chip stocks, funds and preferredshares. The current new money yield is ~3% (down from 4+% at the beginningof the year). The company expects to increase allocation to overseasinvestments for higher yields.
On Ping An Bank, management noted they have successfully completed thefirst phase of infrastructure build-out catering to serve the needs of retailclients in 2013-15. Starting from 2016, PAB will conduct more extensivemigration from corporate to retail business and aim to reach 100m customerby end-18 and to achieve >50% revenue contribution from retail business by2020 (currently ~30%).