Translation to English: Analyze the Q1 reports of A-share listed insurance compa

As of April 30th, the first quarter reports for A-share listed insurance companies have come to an end. Looking at the performance of the five listed insurance companies in the first quarter, the recovery trend of new business value on the life insurance liability side continues. However, due to factors such as natural disasters and investments, the overall net profit performance is still declining. According to statistics by First Financial Daily reporters, the total net profit attributable to the parent company of the five A-share listed insurance companies in the first quarter of the year decreased by 9% year-on-year.

Nevertheless, some industry analysts believe that against the backdrop of low expectations, the performance of both assets and liabilities of the listed insurance companies in the first quarter report has exceeded expectations comprehensively.

Net Profit "Four Declines and One Increase"

In the first quarter of this year, the net profit attributable to the parent company of the five A-share listed insurance companies did not enter an upward trend. According to statistics by First Financial Daily reporters, the five A-share listed insurance companies achieved a total net profit attributable to the parent company of 83.017 billion yuan in the first quarter, a year-on-year decrease of 9%.

Among the five insurance companies, the net profit attributable to the parent company showed a situation of "four declines and one increase", with only China Pacific Insurance (601601.SH, 02601.HK) achieving a slight increase of 1.1%. China Ping An (601318.SH, 02318.HK) and China Life (601628.SH, 02628.HK) saw declines of 4.3% and 9.3% respectively. The net profit attributable to the parent company of New China Life Insurance (601336.SH, 01336.HK) and People's Insurance Company of China (PICC) (601319.SH, 01339.HK) in the first quarter even reached a double-digit year-on-year decline, at 28.6% and 23.5% respectively.

It is worth mentioning that China Life, which still uses the transitional policy in 2023, will also start to implement the new accounting standards for insurance contracts and financial instruments from 2024. So far, all five major A-share listed insurance companies have adopted the new accounting standards, enhancing comparability.

In response to the fluctuations in net profit, PICC stated that the main reasons are as follows: First, natural disasters caused significant economic losses. According to data released by the Ministry of Emergency Management, the direct economic losses caused by natural disasters in China in the first quarter were 23.8 billion yuan, the largest loss in the past five years, compared to 2.6 billion yuan in the same period last year, an increase of nearly tenfold. Second, as economic activities continue to rebound and customer travel increases, the claim rate for auto insurance in the first quarter has risen. Third, affected by the capital market, the company's equity investment income has decreased year-on-year.

Analysts at Huatai Securities attributed the double-digit decline in the net profit attributable to the parent company of New China Life Insurance, a pure life insurance company, to a 44% year-on-year decline in its investment performance in the first quarter, which had a significant impact on profits. In addition, the insurance service performance, which represents the life insurance underwriting performance, is estimated to have declined by 14% year-on-year, also having a certain impact on profits. It may also be affected by the better investment performance in the same period last year, with a higher base.

Looking at the reasons for the decline in net profit, the challenge brought by investments is a common cause. From the first quarter report, the investment yield data of various listed insurance companies mostly show a downward trend, but most are slightly reduced, and overall stable. For example, China Ping An's net investment yield slightly decreased by 0.1 percentage points to 3% year-on-year; China Life's total investment income in the first quarter increased by 7.2% year-on-year, while the net investment income decreased by 0.1% year-on-year, with the simple annualized total investment yield and net investment yield at 3.23% and 2.82% respectively; China Pacific Insurance and New China Life Insurance's total investment yields decreased by 0.1 percentage points and 0.6 percentage points to 1.3% (not annualized) and 4.6% respectively.

However, in terms of the absolute value of the simple annualized yield, New China Life Insurance's net investment yield of 4.6% and comprehensive investment yield of 6.7% are the highest among the A-share listed insurance companies that disclose on the same basis, with the comprehensive investment yield increasing by 1 percentage point compared to the same period last year. New China Life Insurance disclosed its investment strategy for the first quarter: in terms of bond investment, it has seized the favorable opportunity for long-term bond and deposit allocation at the beginning of the year to meet the needs of new fund allocation; actively allocated high-quality non-standard assets, and laid out asset-backed plans, public REITs and other types of products. In terms of equity investment, it actively grasped the structural investment opportunities in the industry, optimized stock and fund investment strategies; at the same time, stocks of listed companies with relatively stable profit models and higher dividend rates were used as the main investment targets.Chinese People's Insurance Company (PICC), which did not disclose its investment return rate, saw a year-on-year decrease of over 50% in both investment income and fair value changes in its profit statement for the first quarter, significantly impacting its net profit. For property insurance companies, the rise in the combined cost ratio due to natural disasters and the recovery of travel also had some impact on net profits. In addition to PICC, Ping An Insurance of China also reported in its first-quarter financial statement that its property insurance combined cost ratio increased by 0.9 percentage points from 98.7% in the same period last year to 99.6% in the first quarter of this year, mainly affected by the snow disaster before the Spring Festival and the recovery of travel, with the snow disaster alone increasing the combined cost ratio by 2.0 percentage points for the quarter. In contrast, China Pacific Insurance's combined cost ratio for the first quarter actually decreased by 0.4 percentage points.

New Business Value Generally Rises

In contrast to the "four declines and one rise" situation of net profit, the recovery atmosphere of new business value on the liability side of life insurance in the first quarter is strong. The new business value of the five A-share listed insurance companies in the first quarter showed a general year-on-year increase.

Looking at the first-quarter financial reports of the five A-share listed insurance companies, the year-on-year increase in new business value ranged from 20% to 80%. Specifically, Ping An Insurance and China Life's new business value increased by 20.7% and 26.3% year-on-year, respectively, China Pacific Insurance grew by 30.7%, New China Life Insurance increased by 51%, and PICC Life Insurance's growth rate was as high as 81.6%.

Dongwu Securities stated that the reasons for the increase in new business value in the first quarter of this year, under the overall stable situation of new orders from listed insurance companies, are attributed to a significant year-on-year increase in the new business value rate. This is mainly due to three aspects: First, the optimization of product and term structure, where the industry has basically digested the impact of the "speculation stop" before the adjustment of life insurance product guaranteed interest rates at the end of July last year, under the background of low interest rates and sluggish competitive financial products, leading to a recovery in long-term periodic business growth. Second, listed insurance companies actively reduced costs and increased efficiency, implemented the "unification of reporting and conduct" in the bank insurance channel, and focused on exploring commission deferral in the individual insurance channel, optimizing the basic law design, and improving the efficiency of cost investment. Third, the adjustment of the guaranteed interest rate at the end of July last year has promoted a stable and slightly decreasing trend in the comprehensive liability cost of insurance companies.

At the same time, the effectiveness of channel reforms in various life insurance companies is gradually being demonstrated. For example, China Pacific Insurance stated that its recruitment of personnel, new person productivity, and the proportion of new person contributions have all increased year-on-year; the 13-month policy continuation rate for individual life insurance customers is 96.9%, an increase of 1.0 percentage points year-on-year, and the 25-month policy continuation rate is 92.9%, an increase of 7.3 percentage points year-on-year. China Life also stated that the quality of the team has significantly improved, with the number and proportion of high-performing individuals continuously increasing, and the monthly per capita first-year periodic premium in the individual insurance sector increased by 17.7% year-on-year, with team productivity achieving continuous growth on a high base.

In addition, in terms of the scale of agents, the figures disclosed by Ping An Insurance and China Life show that the number of individual insurance agents has decreased compared to the end of last year, but the rate of decline has stabilized. Specifically, Ping An Insurance had 333,000 individual life insurance sales agents at the end of the first quarter, a decrease of 4.0% from the beginning of the year; China Life had 622,000 individual insurance sales personnel at the end of the quarter, a decrease of 1.9% from 634,000 at the end of last year, consolidating the stabilization trend of the team size.