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

*Challenges Ignored: Last week a competitor held a virtual conference with Ping An Insurance (2318.HK) [Ping An Insurance]. In typical fashion, the management of Ping An barely scratched the surface in their discussion of its weakened franchise;   *Only A Discussion On Life and P&amp;C: Management guided that Ping An Life (PAL) will have positive Value of New Business (VONB) growth for 2021, as a beneficiary of health reforms. It sees a number of new digital tools empowering agents in sales and customer development, in addition to improving agency recruitment. For Ping An P&amp;C, management guided that the full-year combined ratio would be “slightly higher” than the 99.1% posted through 3Q20. This means that Ping An P&amp;C likely will be loss making on an operational basis if the combined ratio exceeds 100%; and* Move Along, Nothing To See Here: There was no discussion of the following: 1) Continued weakness in Ping An Life’s results; 2) It being  a finalist to acqure Tahoe Insurance in Hong Kong; 3) technology platform; credit insurance risk; and the capital contrained Ping An Bank.

*Challenges Ignored: Last week a competitor held a virtual conference with Ping An Insurance (2318.HK) [Ping An Insurance]. In typical fashion, the management of Ping An barely scratched the surface in their discussion of its weakened franchise;   *Only A Discussion On Life and P&amp;C: Management guided that Ping An Life (PAL) will have positive Value of New Business (VONB) growth for 2021, as a beneficiary of health reforms. It sees a number of new digital tools empowering agents in sales and customer development, in addition to improving agency recruitment. For Ping An P&amp;C, management guided that the full-year combined ratio would be “slightly higher” than the 99.1% posted through 3Q20. This means that Ping An P&amp;C likely will be loss making on an operational basis if the combined ratio exceeds 100%; and* Move Along, Nothing To See Here: There was no discussion of the following: 1) Continued weakness in Ping An Life’s results; 2) It being  a finalist to acqure Tahoe Insurance in Hong Kong; 3) technology platform; credit insurance risk; and the capital contrained Ping An Bank. 

Ping An Insurance – Avoiding The Hard Questions

*Virtual Call Does Little To Quell Concerns: Last week a competitor held a virtual conference with AIA Group (1299.HK) [AIA]. In typical fashion, the management of AIA only discussed the positives neglecting many of the market realities;   *Mainland China Expansion and ASEAN Margins In Focus: According to management, the mainland Chinese expansion is of course progressing well as it plans three regional hubs - Beijing, Shanghai and recently approved Sichuan branch - to act as business centers. As discussed at the latest 3Q20 earnings release and now re-discussed, VONB margins have been increasing in select ASEAN markets; and*Elephants In The Room: Given both the earnings and balance sheet headwinds, who really cares about how many agents were added in mainland China? What was not discussed: negative tax implications for mainland Chinese subsidiaries versus branches; the bogusly rated AAA mainland Chinese bonds; the flailing Hong Kong flagship; and its USD-based investment portfolio.

*Virtual Call Does Little To Quell Concerns: Last week a competitor held a virtual conference with AIA Group (1299.HK) [AIA]. In typical fashion, the management of AIA only discussed the positives neglecting many of the market realities;   *Mainland China Expansion and ASEAN Margins In Focus: According to management, the mainland Chinese expansion is of course progressing well as it plans three regional hubs - Beijing, Shanghai and recently approved Sichuan branch - to act as business centers. As discussed at the latest 3Q20 earnings release and now re-discussed, VONB margins have been increasing in select ASEAN markets; and*Elephants In The Room: Given both the earnings and balance sheet headwinds, who really cares about how many agents were added in mainland China? What was not discussed: negative tax implications for mainland Chinese subsidiaries versus branches; the bogusly rated AAA mainland Chinese bonds; the flailing Hong Kong flagship; and its USD-based investment portfolio.  

*Potential Deal For Tahoe Life: According to a Bloomberg report, Ping An Insurance (2318.HK) [Ping An] (along with Sunshine Insurance Group in Beijing] is a finalist to acquire Tahoe Life, the Hong Kong-based life insurance subsidiary of Tahoe Investment, for over USD 1 bn; and*Other Goodies May Come Along With Deal: In addition to Tahoe Life, Tahoe Investment is a founding shareholder of Haixia Life Insurance and a major shareholder of Fujian Haixia Bank, Rural Credit Bank of Fuzhou, and Dongxing Securities. Given the financial troubles of Tahoe, we would have to imagine the sale of these businesses would also be on the table for Ping An and Sunshine as well.

*Potential Deal For Tahoe Life: According to a Bloomberg report, Ping An Insurance (2318.HK) [Ping An] (along with Sunshine Insurance Group in Beijing] is a finalist to acquire Tahoe Life, the Hong Kong-based life insurance subsidiary of Tahoe Investment, for over USD 1 bn; and*Other Goodies May Come Along With Deal: In addition to Tahoe Life, Tahoe Investment is a founding shareholder of Haixia Life Insurance and a major shareholder of Fujian Haixia Bank, Rural Credit Bank of Fuzhou, and Dongxing Securities. Given the financial troubles of Tahoe, we would have to imagine the sale of these businesses would also be on the table for Ping An and Sunshine as well.

Ping An Insurance – Where There Is Smoke...

*VONB Better Linked Quarter: AIA Group (1299.HK) {AIA} reported 3Q20 Value of New Business (VONB) of USD 706 mn, increasing 22% linked quarter with positive growth noted in Malaysia, Singapore and India – but VONB declined 28% YOY;*Greater China Challenges: Hong Kong’s pure domestic business reported modest linked quarter growth in VONB, but is still likely struggling with mainland Chinese clients as the border remains closed due to quarantines. Mainland China too was weaker as demand for protection products remains challenged. AIA China's VONB in 3Q20 was broadly in -line with 2Q20, but was likely lower YOY given the savings shift, and lower VONB margin; and* Watch The Investment Portfolio: Yields drive the bottom-line at life insurers. Rates have been reduced to all-time lows in most markets globally, and investment returns at AIA’s bottom-line will continue to be challenged. In addition, ratings agency downgrades are expected to negatively impact AIA solvency margins.  With over USD 220 bn in corporate debt issues likely on the verge of downgrade by the venerable ratings agencies (which is greater than the actual USD 147 bn downgraded during the GFC) the market must be prepared for substantive hits to AIA’s investment portfolio.

*VONB Better Linked Quarter: AIA Group (1299.HK) {AIA} reported 3Q20 Value of New Business (VONB) of USD 706 mn, increasing 22% linked quarter with positive growth noted in Malaysia, Singapore and India – but VONB declined 28% YOY;*Greater China Challenges: Hong Kong’s pure domestic business reported modest linked quarter growth in VONB, but is still likely struggling with mainland Chinese clients as the border remains closed due to quarantines. Mainland China too was weaker as demand for protection products remains challenged. AIA China's VONB in 3Q20 was broadly in -line with 2Q20, but was likely lower YOY given the savings shift, and lower VONB margin; and* Watch The Investment Portfolio: Yields drive the bottom-line at life insurers. Rates have been reduced to all-time lows in most markets globally, and investment returns at AIA’s bottom-line will continue to be challenged. In addition, ratings agency downgrades are expected to negatively impact AIA solvency margins.  With over USD 220 bn in corporate debt issues likely on the verge of downgrade by the venerable ratings agencies (which is greater than the actual USD 147 bn downgraded during the GFC) the market must be prepared for substantive hits to AIA’s investment portfolio.

AIA Group – Greater China and Investments Remain Risks

*Weak Great Eastern Returns: Great Eastern Life (GE.SP) [Great Eastern] reported 3Q20 bottom-line results of SGD 287.9 mn, declining SGD 9.6 mn (3.2%) linked quarter. On an operating basis excluding market-related gains, the decline in profits was even more pronounced at SGD 24.6 mn or 9.4% over the period due to new business strain. Earnings were materially weaker than what consensus has built in for Overseas Chinese Banking Corp. (OCBC.SP) (earnings release date November 5, 2020) – and pose a modest consensus miss for OCBC. Higher volatility in reported Great Eastern earnings decreases confidence in forecasts; and*Better Readacross to Regional Insurers: MTM gains would imply a negative readacross to AIA (1299.HK), Prudential (PRU.LN), ManuLife (MFC.CN), and of course the mainland Chinese insurers.

*Weak Great Eastern Returns: Great Eastern Life (GE.SP) [Great Eastern] reported 3Q20 bottom-line results of SGD 287.9 mn, declining SGD 9.6 mn (3.2%) linked quarter. On an operating basis excluding market-related gains, the decline in profits was even more pronounced at SGD 24.6 mn or 9.4% over the period due to new business strain. Earnings were materially weaker than what consensus has built in for Overseas Chinese Banking Corp. (OCBC.SP) (earnings release date November 5, 2020) – and pose a modest consensus miss for OCBC. Higher volatility in reported Great Eastern earnings decreases confidence in forecasts; and*Better Readacross to Regional Insurers: MTM gains would imply a negative readacross to AIA (1299.HK), Prudential (PRU.LN), ManuLife (MFC.CN), and of course the mainland Chinese insurers. 

Oversea Chinese Banking Corp – Still Not A Great Eastern

United Kingdom

Prudential plc is an international company which provides a wide assortment of insurance and investment products and services. Insurance products include life, accident and health, property and casualty insurance, as well as fixed and variable annuities.  Financial and investment services include personal and group pensions, equity plans, mortgages and deposit accounts.

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Prudential PLC (PRU LN)

Ping An Insurance – Avoiding The Hard Questions

PING AN INSURANCE: Everyone Understands That Ping An Insurance Is Struggling In Every Business Line. Management Refuses To Discuss How They Are...

Thomas J. Monaco

AIA Group – Let’s Get Real

AIA GROUP: AIA Must Not Believe Its Investor Base Cares About Anything But China Growth. It Expects Everyone To Ignore Hong Kong, Negative Tax...

Thomas J. Monaco

Ping An Insurance – Where There Is Smoke...

PING AN INSURANCE: Tahoe Life Appears To Be Up For Sale, Given The Financial Troubles Of Tahoe Investment. Ping An Is Likely A Bidder, And Other...

Thomas J. Monaco

AIA Group – Greater China and Investments Remain Risks

AIA GROUP: While VONB Has Seen Improvement Linked Quarter, Greater China Challenges and The Investment Portfolio Are Big Risks To The Bottom-line

Thomas J. Monaco

Oversea Chinese Banking Corp – Still Not A Great Eastern

OVERSEA CHINESE BANKING CORP: Great Eastern Life Posts Another Weak Quarter; Margins Were Weaker and EPS Reliant On Gains. OCBC Consensus Appear...

Thomas J. Monaco

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