Huachuang Securities recently released a research report indicating that the current insurance sector is facing significant constraints due to “interest spread loss” pressures resulting from declining long-term interest rates. This has led to the sector’s valuation level being at a historical low. However, the report suggests that comprehensive transformation and deepening from products to channels are expected to drive gradual improvements in the operating quality on the liability side. Meanwhile, multi-faceted measures on the asset side are expected to converge interest spread risks. The expectation of recovery on both the capital and negative sides is anticipated to catalyze a rebound in the sector’s valuation.
Key Insights from Huachuang Securities:
Historical Performance of the Insurance Sector
Looking back at the insurance sector over the past decade, it can be divided into stages based on the driving factors of the market:
2015-2016: The insurance sector initially rose and then fell, followed by a low-level adjustment. The main influencing factor was likely the fluctuations in the stock market.
2017: The insurance sector significantly outperformed the broader market, driven by the transformation of industry value promoted by Document No. 134.
2018-2019: The sector initially declined and then rose, aligning with the overall market trend. Investment flexibility and tax reduction policy dividends drove its growth rate to outperform the market in 2019.
2020-2022: The sector initially rose and then fell, influenced by the epidemic’s disruption, recovery expectations, real estate default events, and the reform and clearing of the brokerage market.
2023-Present: The insurance sector has outperformed the broader market in most periods, influenced by diversified and cross-aggregated factors such as the implementation of agent reform, regulatory efforts to reduce liability costs, structural dividend trends, and the expansion of the industry’s beta effect under new standards.
Significant Years for the Insurance Sector
2017, 2019, 2024: These were “big years” for the insurance sector, with significant excess returns. The growth rates were 83%, 52%, and 43% respectively, outperforming the market by 61 percentage points, 16 percentage points, and 28 percentage points respectively. Although the sector did not achieve absolute returns in 2016 and 2022, it still outperformed the overall market by 10 percentage points and 22 percentage points respectively.
Individual Stock Performance
Ping An, China Life, and New China Life: These companies took turns leading the phased rally in 2017, 2019, and 2024.
2017: Document No. 134 promoted value transformation. Ping An was the first to optimize its product structure, with its protection-oriented products performing outstandingly. The profit source structure mainly based on death and fee differences demonstrated resilience.
2019: The recovery of the stock market enhanced the investment flexibility of insurance companies. China Life benefited from tax reduction policy dividends, achieving explosive growth in performance with its net profit attributable to shareholders and NBV growth rate leading the industry.
2024: The “924” market rally drove the equity market, with New China Life performing outstandingly due to its flexible stock position.
CPIC: Achieved relative returns from the second half of 2022 to the first half of 2024. With the “Changhang” transformation, CPIC was the first to achieve a positive NBV growth rate and consistently outperformed the industry in terms of relative returns during this period.
Property Insurance Performance
China Property & Casualty Insurance: Has been on a continuous rise for five years since 2021, with a cumulative return rate as high as 241%, significantly outperforming the industry except for 2024.
PICC: Also outperformed the industry in the past five years. Under the background of declining interest rates, the profit model of property insurance is dominant, and its defensive attributes are prominent. As the industry leader, China Property & Casualty Insurance has maintained a stable market share, reduced risks, optimized cost management, and achieved steady growth in underwriting profits. Additionally, high dividends are an important feature of China Property & Casualty Insurance.
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