The Game Is On: Embracing Goldilocks Era for Life Growth, Margin
开启金牛时代Start of a goldilocks era; new policy a LT gain — Despite a “high base” since
2015, life NBV will likely continue to embrace multi-year strong growth (we estimate
a >20% CAGR through 2019E), thanks to a secular uptrend in penetration and
product mix. No.134 Policy would cause a volume hiccup but also drive margins up.
中产阶级的崛起和人寿险渗透起飞 Rise of middle class and takeoff of life penetration — China is on track to a
“moderately prosperous” society as per capita GDP nears US$10,000. Global
experience suggests this is a take-off point for life insurance penetration, which
currently stands at 2.3% in China (vs 3.5% world average). Chinese provinces/cities
surpassing US$10,000 per-capita GDP already account for c.50% of the national
life market and are gaining national market shares (i.e. outgrowing national market)
in recent years. And over time more provinces will join this middle class league.
进入长期上升趋势Likely a (multi-) decade story after entering a secular uptrend — Socioeconomic
variances would lead to a different speed of increase and steady-states
for life insurance penetration. China only used 1/3 of the time the US did to raise
L&H penetration from 2% to 3%. However, developed markets in the Americas
(US/CA) and Asia (JP/KR/TW) share a common trend – once penetration takes off,
the secular uptrend would last for 10+ years or even multiple decades. We expect
15% L&H CAGR in 2016-25E and L&H penetration to c.5.7% in China by 2025E.
利润率上升A secular margin uptrend; 3-stage product cycle — Developed markets
(US/JP/KR/TW) suggest a typical 3-stage life product cycle. As the middle-class
expands, growing protection awareness/gap would lead to a shift from savings and
simple life products (stage 1) to protection/health products (stage 2). As society
reaches affluent levels and population ages, the desire for investment would
dominate, leading to a shift to annuity/linked products (stage 3). We think China is
transitioning from stage 1 to 2, and coupled with govt window guidance, this would
propel ongoing product mix upgrade and support (if not raise) margins.
友邦中国！国内领导者AIA China today, domestic leaders tomorrow? — AIA China grew its NBV at a
41% CAGR and more than tripled its margin in 2009-16. We attribute this to AIA’s
top-notch agents and covering of some of China’s most affluent regions (BJ, SH,
JS, GD) where life penetration and demand for protection rise sharply.
谁是最好的，最适合的？Who is best positioned and most geared? — As pure lifers, China Life and NCI
are most geared to the life insurance goldilocks era. However, we see Ping An as
best placed given its geo and customer mix, agent quality and cross-selling.
肯定看涨的立场Affirm bullish stance — Structural drivers aside, we continue to see a cyclical
earnings upcycle and notable DPS growth through 2018E. Ping An-H is our core
holding, while China Life-H and NCI-H are most geared to cyclical improvements.
On the cyclical side, life insurers enjoy the following drivers:
Earnings uptrend as the reserving cycle turns amid bottoming/rising 750-day
moving average bond yields;
DPS upcycle, alongside the earnings upcycle and given still room for higher
dividend payout ratios (currently mostly 10%-35%, which we believe could rise to
Likely sustainably high bond yields amid reflation and financial deleveraging
engineered by the regulator; this in turn would be positive to insurers’ recurring
investment returns and reserving trend; and
Likely decelerating but still creditable NBV growth. We believe No.134 Policy
would only cause a short-term deceleration in volume growth, but which would
also force life insurers to further improve product mix towards protection products
Structurally, we believe China has reached a takeoff point for the middle class, the
rise of which would propel a secular uptrend for life insurance penetration and also
product mix shift to protection/health insurance products.
We are bullish on the China insurance sector. In particular, Ping An-H is our
core-holding in the sector. We also highlight China Life-H and NCI-H as the most
geared to life earnings turnaround given their pure life plays, sensitivity to interest
rates, and relatively low base for profitability improvement.
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