China Insurance Sector:March premiums–exceptional growth continued in Life;robust P&C

Strong pickup in Life

    Life premiums recorded strong growth of 4.4-61.9% in March (vs. -44.0-41.9% in February, due to CNY effect). Taiping led, at 61.9% yoy, on a low base, and NCI reported positive growth for the first time since January. Based on Ping An’s disclosure, FYP (ex-Grp) recorded the highest growth, at 87.6% (vs. 62.9% in February and 37.3% in January), likely driven by the agency channel, which should bode well for VNB growth. P&C premiums were largely stable, with key players’ growth ranging from 9.0% to 35.3% (vs. 13.8-32.7% in February), despite slower auto sales. We maintain our positive view on China insurers.

    Life - a decent acceleration

    Taiping led March growth, at 61.9% (vs. -11.5% in February), followed by Ping An at 45.9% (+41.9%), CPIC at 33.0% (+26.8%), China Life at 31.1% (-17.7%), PICC Group at 21.0% (-48.7%) and NCI at 4.4% (-44.0%). According to Taiping’s disclosure, the strong growth in March was driven mainly by individual regular premiums (+66.9%) and bancassurance single premiums (+107.2%, thanks to a low base). In terms of 1Q17 performance, CPIC led, at 43.1% yoy (vs. +47.6% in 2M17), followed by Ping An at 40.7% (+39.4%), Taiping at 35.9% (+30.3%), China Life at 22.1% (+19.7%), PICC Group at -7.0% (-10.9%) and NCI at -20.0% (-29.6%). Based on Ping An’s disclosure, the company achieved FYP growth of 45.2% in 1Q17, which should bode well for VNB growth.

    P&C - stable growth

    The P&C business recorded stable premium growth in March, with headline growth ranging from 2.8% to 27.7% and underlying (ex-VAT impact) growth ranging from 9.0% to 35.3% (vs. 13.8-64.8% in February). On a monthly basis, Ping An led, at 35.3% yoy (vs. +32.7% in February), driven by a strong recovery in non-auto premiums (+157.2% on a low base), followed by Ch Continent at 24.2% (+19.5%), PICC at 19.2% (+23.1%), Taiping at 16.0% (+64.8%) and CPIC at 9.0% (+13.8%). On a YTD basis, Ping An led, at 30.6% (vs. +28.4% in 2M17), followed by Ch Continent at 20.1% (+17.7%), PICC at 15.2% (+12.7%), Ch Taiping at 12.9% (+11.1%) and CPIC at 7.9% (+7.4%).

    Staying positive on Life on attractive valuation and strong fundamentals

    We believe the current valuation of 0.9x 2017E P/EV for life insurers (assuming a 3.5% long-term investment return) is unjustified, given the sector’s strong growth momentum. We believe current low deposit rates (competitive yields for insurers) and rising market yields should support insurers’ investment spread. Continued fund flow away from bank deposits into financial products (including life policies) should support a strong growth outlook for the sector. As such, we reiterate our positive view on the Chinese life insurance sector. Our top picks are China Life and Ch Taiping. Investment risks include significant weakness in China’s investment markets, asset quality risks and weaker-than-expected growth.