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

*BEA Life Deal: In an effort to reinforce its Greater China franchise, AIA Group (1299.HK) [AIA] has entered into an agreement to purchase Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life, and entered into an exclusive 15-year bancassurance relationship with BEA for HKD 5.07 bn (USD 653 mn) covering Hong Kong and mainland China; and *Lost Focus: Acquiring a fledgling Hong Kong insurance franchise at a premium when you’re the dominant player and unemployment remains excessive, suggests that AIA is more concerned with growth metrics rather than addressing the risks that AIA is facing in mainland China, Hong Kong, and in its investment portfolio.

*BEA Life Deal: In an effort to reinforce its Greater China franchise, AIA Group (1299.HK) [AIA] has entered into an agreement to purchase Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life, and entered into an exclusive 15-year bancassurance relationship with BEA for HKD 5.07 bn (USD 653 mn) covering Hong Kong and mainland China; and *Lost Focus: Acquiring a fledgling Hong Kong insurance franchise at a premium when you’re the dominant player and unemployment remains excessive, suggests that AIA is more concerned with growth metrics rather than addressing the risks that AIA is facing in mainland China, Hong Kong, and in its investment portfolio. 

AIA Group – Confirming No Organic Growth On Horizon

*PAL Improves, But Fundamentals Weak: Ping An Insurance (2318.HK)[Ping An] reported a 1H20 operating profit of CNY 74.3 bn, increasing just 1% YOY and 5% below consensus. As a recovery appears underway with Ping An Life (PAL), Ping An results appeared to be well-supported by a HOH improvement of CNY 13.2 bn bn (40.4%) in net profits  - although its value of new business (VONB) declined CNY 3.9 bn (11.9%); *P&amp;C Remains A Challenge: Auto combined ratio reversed course and increased by 250 bp to 100.6%, and certainly warrants watching a driving returns to normal in mainland China. Auto insurance reform will remain a challenge for profitability going forward, and pricing has yet to stabilize. The credit insurance segment remains challenged, due to defaults on underlying loans.*Awful Bank Result: For 4Q20, PAB reported results of CNY 6.5 bn – declining CNY 2.2 bn (25.1%) on a linked quarter basis. In this environment, credit troubles no doubt are a foregone conclusion. However, this was not necessarily PAB’s biggest issue in its most results announcement, where the bulk of the earnings decline was attributed to a CNY 1.9 bn (17.1%) linked quarter increase in costs.

*PAL Improves, But Fundamentals Weak: Ping An Insurance (2318.HK)[Ping An] reported a 1H20 operating profit of CNY 74.3 bn, increasing just 1% YOY and 5% below consensus. As a recovery appears underway with Ping An Life (PAL), Ping An results appeared to be well-supported by a HOH improvement of CNY 13.2 bn bn (40.4%) in net profits  - although its value of new business (VONB) declined CNY 3.9 bn (11.9%); *P&amp;C Remains A Challenge: Auto combined ratio reversed course and increased by 250 bp to 100.6%, and certainly warrants watching a driving returns to normal in mainland China. Auto insurance reform will remain a challenge for profitability going forward, and pricing has yet to stabilize. The credit insurance segment remains challenged, due to defaults on underlying loans.*Awful Bank Result: For 4Q20, PAB reported results of CNY 6.5 bn – declining CNY 2.2 bn (25.1%) on a linked quarter basis. In this environment, credit troubles no doubt are a foregone conclusion. However, this was not necessarily PAB’s biggest issue in its most results announcement, where the bulk of the earnings decline was attributed to a CNY 1.9 bn (17.1%) linked quarter increase in costs.

Ping An Insurance – Hope Is Not A Strategy

*Costs Now An Issue: Ping An Bank (000001.CH) [PAB], the Ping An Insurance (2318.HK) [Ping An] banking subsidiary, reported CNY 6.5 bn – declining CNY 2.2 bn (25.1%) on a linked quarter basis. In this environment, credit troubles no doubt are a foregone conclusion. However, this was not necessarily PAB’s biggest issue in its most results announcement, where the bulk of the earnings decline was attributed to a CNY 1.9 bn (17.1%) linked quarter increase in costs;*Credit Is WEAKER Still:  We find that credit weakness is actually deteriorating at an even more accelerated pace than in 3Q20, as net new NPLs have increased CNY 20.5 bn or a massive 241% (223% in 3Q20) on an annualized basis. We also find that PAB’s reserves still remain quite light by CNY 152 bn if we assume a 2x NPL ratio. This shortfall represents 60% of stated equity; and*Fundamentally Challenged Still: Despite the Investor Day cheerleading session, Ping An P&amp;C operating profits declined CNY 2.6 bn (29.2%) HOH in 1H20, as the overall combined ratio eroded 1.5% to 98.1% due primarily to continued weakness within the credit insurance unit where the combined ratio came in at 125.6% (up 32.4%). The credit insurance segment reported a CNY 3.5 bn underwriting loss, due to defaults on underlying loans.

*Costs Now An Issue: Ping An Bank (000001.CH) [PAB], the Ping An Insurance (2318.HK) [Ping An] banking subsidiary, reported CNY 6.5 bn – declining CNY 2.2 bn (25.1%) on a linked quarter basis. In this environment, credit troubles no doubt are a foregone conclusion. However, this was not necessarily PAB’s biggest issue in its most results announcement, where the bulk of the earnings decline was attributed to a CNY 1.9 bn (17.1%) linked quarter increase in costs;*Credit Is WEAKER Still:  We find that credit weakness is actually deteriorating at an even more accelerated pace than in 3Q20, as net new NPLs have increased CNY 20.5 bn or a massive 241% (223% in 3Q20) on an annualized basis. We also find that PAB’s reserves still remain quite light by CNY 152 bn if we assume a 2x NPL ratio. This shortfall represents 60% of stated equity; and*Fundamentally Challenged Still: Despite the Investor Day cheerleading session, Ping An P&amp;C operating profits declined CNY 2.6 bn (29.2%) HOH in 1H20, as the overall combined ratio eroded 1.5% to 98.1% due primarily to continued weakness within the credit insurance unit where the combined ratio came in at 125.6% (up 32.4%). The credit insurance segment reported a CNY 3.5 bn underwriting loss, due to defaults on underlying loans. 

China Reinsurance (Group) / Equity Bottom-Up

*Investor Day Highlights: China Reinsurance Group (1508.HK) [China Re] discussed its differentiated approach in mainland China’s rapidly evolving health insurance market at its recent Investor Day on December 22nd. Much of the discussion centered on recent developments at its Protection Reinsurance (Protection Re] unit which is China Re’s fastest growing business segment; and  *Results Are Turning:  China Re's 3Q20 earnings of CNY 3.4 bn grew nearly threefold YOY, aided by investment gains. Reinsurance premiums increased 93% YOY at 3Q20 while and P&amp;C premium increased 8% over the period. Earnings were strong across all business units. Solvency was also strong across all three major business lines.

*Investor Day Highlights: China Reinsurance Group (1508.HK) [China Re] discussed its differentiated approach in mainland China’s rapidly evolving health insurance market at its recent Investor Day on December 22nd. Much of the discussion centered on recent developments at its Protection Reinsurance (Protection Re] unit which is China Re’s fastest growing business segment; and  *Results Are Turning:  China Re's 3Q20 earnings of CNY 3.4 bn grew nearly threefold YOY, aided by investment gains. Reinsurance premiums increased 93% YOY at 3Q20 while and P&amp;C premium increased 8% over the period. Earnings were strong across all business units. Solvency was also strong across all three major business lines.

*Partnership With ZhongAn: AIA Group (1299.HK) [AIA] and ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn] majority owned ZA Tech Global (ZA Tech) subsidiary announced a regional strategic digital partnership. The partnership covers all of AIA’s markets excluding mainland China, and opens new regional sales opportunities for AIA;*Risks Remain: This new partnership, as potentially exciting as it is, in now way offsets the risks AIA is facing in mainland China, Hong Kong, and in its investment portfolio.

*Partnership With ZhongAn: AIA Group (1299.HK) [AIA] and ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn] majority owned ZA Tech Global (ZA Tech) subsidiary announced a regional strategic digital partnership. The partnership covers all of AIA’s markets excluding mainland China, and opens new regional sales opportunities for AIA;*Risks Remain: This new partnership, as potentially exciting as it is, in now way offsets the risks AIA is facing in mainland China, Hong Kong, and in its investment portfolio.

AIA Group – New Initiative Does Not Offset Risks

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)

AIA Group – Confirming No Organic Growth On Horizon

AIA GROUP: AIA entered into an agreement to acquire BEA Life, and entered into a bancassurance relationship with BEA. Acquiring a fledgling Hong...

Thomas J. Monaco

Ping An Insurance – Hope Is Not A Strategy

PING AN INSURANCE: Ping An reported 2H20 an operating profit decline of 12.2% HOH. Despite bottom-line improvement in Life, results are truly...

Thomas J. Monaco

Ping An Insurance - Awful Bank Result

PING AN INSURANCE: PAB reported a 25.1% lower linked quarter result. The bulk of the earnings decline was attributed to a 17.1% increase in costs;...

Thomas J. Monaco

China Reinsurance – Healthy

CHINA REINSURANCE GROUP: Investor Day Highlights Developments At Protection Reinsurance. Results Are Also Turning With China Re's 3Q20 Earnings...

Thomas J. Monaco

AIA Group – New Initiative Does Not Offset Risks

AIA GROUP: New Partnership With Zhong An Should Help New Customer Acquisition Regionally, But Risks Remain High In Hong Kong, Mainland China, and...

Thomas J. Monaco

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