Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

People's Insurance (PICC) / Equity Bottom-Up

*Improving Profitability: PICC Group (1339.HK) [People’s] reported 1Q21 net profit after tax of CNY 10.0 bn, increasing by a whopping CNY 8.7 bn mn (6.7x) on a linked quarter basis. The linked quarter improvement can be attributed both to the PICC Life and PICC P&amp;C (2328.HK) whose bottom-line’s improved CNY 4.4 bn (vs a loss of CNY 1.8 bn in 4Q20) and CNY 3.8 bn (156.3%) - accounting for 61% and 27% of the group's earnings;  and *PICC P&amp;C Posts Big Expense Improvement: PICC P&amp;C (2328.HK) reported a 1Q21 net profit of CNY 8.9 bn, increasing 156.3% linked quarter. The overall combined ratio declined from 101.3% in 4Q20 to 95.7%. Compositionally, the overall expense ratio decreased 650 bp linked quarter to 25.4%, while the loss ratio increased 90 bp to 70.3%, reflecting a change in auto insurer’s cost structure after implementing pricing reforms.

*Improving Profitability: PICC Group (1339.HK) [People’s] reported 1Q21 net profit after tax of CNY 10.0 bn, increasing by a whopping CNY 8.7 bn mn (6.7x) on a linked quarter basis. The linked quarter improvement can be attributed both to the PICC Life and PICC P&amp;C (2328.HK) whose bottom-line’s improved CNY 4.4 bn (vs a loss of CNY 1.8 bn in 4Q20) and CNY 3.8 bn (156.3%) - accounting for 61% and 27% of the group's earnings;  and *PICC P&amp;C Posts Big Expense Improvement: PICC P&amp;C (2328.HK) reported a 1Q21 net profit of CNY 8.9 bn, increasing 156.3% linked quarter. The overall combined ratio declined from 101.3% in 4Q20 to 95.7%. Compositionally, the overall expense ratio decreased 650 bp linked quarter to 25.4%, while the loss ratio increased 90 bp to 70.3%, reflecting a change in auto insurer’s cost structure after implementing pricing reforms. 

*Weak Results Showing No Signs Of Improvement: Ping An Insurance (2318.HK) [Ping An] reported results for 1Q21, coming in at CNY 27.2 bn which declined CNY 12.9 bn (32.0%) linked quarter. Ping An was pelted on two fronts this quarter: a) investment income declined CNY 55.8 bn (77.9%) linked quarter as the gross investment yield was cut in half to 3.1% - impacted by a CNY 18.2 bn impairment loss related to China Fortune Land (600340.CH); and b) expenses increased CNY 21.5 bn (8.5%), driven by claims which increased CNY 38.8 bn (25.8%); andBank Improvement:  Ping An Bank (000001.CH) [PAB], reported reported results of CNY 10.1 bn – increasing CNY 3.6 bn (55.2%) on a linked quarter basis. By our analysis, we find that credit weakness continues to occur as net new NPLs have increased CNY 4.2 bn or 53.6% on an annualized basis. In fairness, however, this is far better than the CNY 20.5 bn or a massive 241% (223% in 3Q20) increase on an annualized basis. We find that PAB’s reserves still remain light by CNY 19 bn if we assume a 2x NPL ratio – but sub stantially better than 4Q20.

*Weak Results Showing No Signs Of Improvement: Ping An Insurance (2318.HK) [Ping An] reported results for 1Q21, coming in at CNY 27.2 bn which declined CNY 12.9 bn (32.0%) linked quarter. Ping An was pelted on two fronts this quarter: a) investment income declined CNY 55.8 bn (77.9%) linked quarter as the gross investment yield was cut in half to 3.1% - impacted by a CNY 18.2 bn impairment loss related to China Fortune Land (600340.CH); and b) expenses increased CNY 21.5 bn (8.5%), driven by claims which increased CNY 38.8 bn (25.8%); andBank Improvement:  Ping An Bank (000001.CH) [PAB], reported reported results of CNY 10.1 bn – increasing CNY 3.6 bn (55.2%) on a linked quarter basis. By our analysis, we find that credit weakness continues to occur as net new NPLs have increased CNY 4.2 bn or 53.6% on an annualized basis. In fairness, however, this is far better than the CNY 20.5 bn or a massive 241% (223% in 3Q20) increase on an annualized basis. We find that PAB’s reserves still remain light by CNY 19 bn if we assume a 2x NPL ratio – but sub stantially better than 4Q20.

China Pacific Insurance / Equity Bottom-Up

*Weak 2H20 Results: China Pacific Insurance (2601.HK) (CPIC) reported full year 2020 results of CNY 31.1 bn, increasing CNY 3.2 bn (11.5%) YOY. On a HOH basis, however, CPIC’s results continue to exhibit challenges as 2H20 results declined CNY 3.7 bn (21.3%) – amounting to just CNY 13.7 bn. Profitability was hurt by both the Life and P&amp;C units; and*Get A Life: During 2H20, first year premium (FYP) agent per month declined by 48.6% HOH to CNY 1,648 due largely to CPIC relying on online channels to conduct new sales during the COVID-19 outbreak along with expanded the short-term policy sales. In addition, CPIC Life appears to have culled its salesforce over the period to 17,000 (2.2%) which now will impact future VONB. Life VONB declined 41.1%, largely as expected, due to COVID-19 volume drop and a VONB margin decline of 10%.

*Weak 2H20 Results: China Pacific Insurance (2601.HK) (CPIC) reported full year 2020 results of CNY 31.1 bn, increasing CNY 3.2 bn (11.5%) YOY. On a HOH basis, however, CPIC’s results continue to exhibit challenges as 2H20 results declined CNY 3.7 bn (21.3%) – amounting to just CNY 13.7 bn. Profitability was hurt by both the Life and P&amp;C units; and*Get A Life: During 2H20, first year premium (FYP) agent per month declined by 48.6% HOH to CNY 1,648 due largely to CPIC relying on online channels to conduct new sales during the COVID-19 outbreak along with expanded the short-term policy sales. In addition, CPIC Life appears to have culled its salesforce over the period to 17,000 (2.2%) which now will impact future VONB. Life VONB declined 41.1%, largely as expected, due to COVID-19 volume drop and a VONB margin decline of 10%.  

China Pacific Insurance – No Sign Of Life

China Life Insurance Company / Equity Bottom-Up

*Reserve Top Ups Weigh On Numbers This Time: China Life Insurance (2628.HK) [China Life] reported 2020 bottom-line of CNY 50.3 bn – declining CNY 8.0 bn (13.7%) YOY. Excluding the impact of the 2019 tax refund of CNY 5.2 bn, China Life’s bottom-line performance would have declined only CNY 2.8 bn or 5.3% YOY – but still down; and*Value Challenges Ahead: With value challenges ahead in China Life’s illiquid securities portfolio (Challenged Tier 2/3 bank negotiable CDs and alternatives) and the CBIRC’s enabling of insurers to increase their concentration in equities, we not only question solvency margins but the viability of China Life’s full-year dividend per share – not to mention the impact of lower net yields.

*Reserve Top Ups Weigh On Numbers This Time: China Life Insurance (2628.HK) [China Life] reported 2020 bottom-line of CNY 50.3 bn – declining CNY 8.0 bn (13.7%) YOY. Excluding the impact of the 2019 tax refund of CNY 5.2 bn, China Life’s bottom-line performance would have declined only CNY 2.8 bn or 5.3% YOY – but still down; and*Value Challenges Ahead: With value challenges ahead in China Life’s illiquid securities portfolio (Challenged Tier 2/3 bank negotiable CDs and alternatives) and the CBIRC’s enabling of insurers to increase their concentration in equities, we not only question solvency margins but the viability of China Life’s full-year dividend per share – not to mention the impact of lower net yields.

ZhongAn Online P&C Insurance C / Equity Bottom-Up

*First Year Of Profitability: ZhongAn Online P&amp;C Insurance (6060.HK) [ZhongAn] reported full year 2020 bottom-line results of CNY 554 mn, an increase of CNY 1.0 bn over losses of CNY 454 mn in 2019. Much of the turnaround in what amounts to ZhongAn’s first year of profitability can be attributed to the YOY volume growth in net earned premium of CNY 3.4 bn (26.7%) to CNY 16.7 bn; and *Credit Insurance &amp; Investment Concerns: The YOY combined ratio improvement of 10.8% to 102.5%, in pur view, is due largely to the improvement in credit insurance whose loss ratio declined from 97% in 2019 to 63%. We have a difficult time believing that little old ZhongAn has figured out the secret sauce to credit insurance risk. With value challenges ahead in ZhongAn’s illiquid securities portfolio (Challenged Tier 2/3 bank negotiable CDs and alternatives) and the CBIRC’s enabling of insurers to increase their concentration in equities, we question solvency margins and future ZhongAn dividends.

*First Year Of Profitability: ZhongAn Online P&amp;C Insurance (6060.HK) [ZhongAn] reported full year 2020 bottom-line results of CNY 554 mn, an increase of CNY 1.0 bn over losses of CNY 454 mn in 2019. Much of the turnaround in what amounts to ZhongAn’s first year of profitability can be attributed to the YOY volume growth in net earned premium of CNY 3.4 bn (26.7%) to CNY 16.7 bn; and *Credit Insurance &amp; Investment Concerns: The YOY combined ratio improvement of 10.8% to 102.5%, in pur view, is due largely to the improvement in credit insurance whose loss ratio declined from 97% in 2019 to 63%. We have a difficult time believing that little old ZhongAn has figured out the secret sauce to credit insurance risk. With value challenges ahead in ZhongAn’s illiquid securities portfolio (Challenged Tier 2/3 bank negotiable CDs and alternatives) and the CBIRC’s enabling of insurers to increase their concentration in equities, we question solvency margins and future ZhongAn dividends.

ZhongAn Online P&C Insurance – Don’t Believe The Hype

Hong Kong

China Taiping Insurance Holdings Company Ltd., through subsidiaries, underwrites life and property/casualty insurance and reinsurance.

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China Taiping Insurance Hldgs (966 HK)

PICC Group – Big Print

PICC GROUP: PICC reported QOQ 1Q21 net profit growth of 6.7x, attributed both to the PICC Life and PICC P&C (2328.HK) whose bottom-line’s each...

Thomas J. Monaco

Ping An Insurance – It’s Magic

PING AN INSURANCE: Ping An reported a QOQ 1Q21 earnings decline of 32.0% due and investment income decline and an expense increase. Despite the...

Thomas J. Monaco

China Pacific Insurance – No Sign Of Life

CHINA PACIFIC INSURANCE: CPIC HOH results continue to exhibit challenges, declining 21.3%. Profitability was hurt by both the Life and P&C units.

Thomas J. Monaco

China Life Insurance – Not So Good

CHINA LIFE: China Life reported a 13.7% YOY decline in 2020 bottom-line. With value challenges ahead in China Life’s illiquid securities portfolio,...

Thomas J. Monaco

ZhongAn Online P&C Insurance – Don’t Believe The Hype

ZHONGAN ONLINE P&C INSURANCE: ZhongAn reported full year 2020 bottom-line results of CNY 554 mn. We have a difficult time believing that ZhongAn...

Thomas J. Monaco

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