Silver Point

Thomas J. Monaco

Independent Insight Provider

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

*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.

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/waterdrop-inc" target="_blank" data-smartkarma-citation="entities:33018:1" rel="noopener">Waterdrop Inc (WDH US)</a> is the largest independent third-party insurance platform in China as measured by life and health insurance first-year premiums (FYP) distributed in 2020, according to iResearch. It is also the largest medical crowdfunding platform in China as measured by cumulative funds raised for 2020, according to iResearch. Waterdrop is backed by <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a> (22.1% of outstanding shares), <a href="https://www.smartkarma.com/entities/swiss-re-ag-1f83dcbc-730e-46fa-82f2-bfe7e8e361a1" target="_blank" data-smartkarma-citation="entities:27914:1" rel="noopener">Swiss Re AG (SREN SW)</a> (5.7%) and <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>. Waterdrop has filed for an NYSE IPO with a placeholder amount of $100 million. Healthcare coverage in China is primarily paid by social medical insurance (29.4% of total healthcare spend), commercial insurance (3.4%) and medical crowdfunding and other social charities (0.2%), according to iResearch. The potential medical protection gap (67.0% out-of-pocket expense) is an opportunity. Driven by the significant medical protection gap and rising awareness for protection, the Chinese insurance market is expected to reach RMB7.8 trillion by 2024, representing a CAGR of 12.9% from 2019, according to iResearch. Third-party insurance brokers and agents is a key distribution channel and will account for 13.0% of the total life and health insurance premium in 2025 vs 2.5% in 2019. <div class="content-highlight">As a leading online third-party insurance broker, Waterdrop is well-positioned to benefit from these favourable trends. While the revenue growth rate is slowing it remains fast-paced and is accompanied by lower losses and cash burn. The key unknown is whether the changing regulations will throw a spanner in the works. <a href="https://www.smartkarma.com/entities/ant-group-co-ltd" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial Services Group (6688 HK)</a>, the key competitor, has seen its key CreditTech business bashed by regulations but its InsureTech business (the part that competes with Waterdrop) appears to be relatively unscathed. Notwithstanding the regulatory overhang, we believe that Waterdrop is worth a look.</div>

Waterdrop Inc (WDH US) is the largest independent third-party insurance platform in China as measured by life and health insurance first-year premiums (FYP) distributed in 2020, according to iResearch. It is also the largest medical crowdfunding platform in China as measured by cumulative funds raised for 2020, according to iResearch. Waterdrop is backed by Tencent Holdings (700 HK) (22.1% of outstanding shares), Swiss Re AG (SREN SW) (5.7%) and Meituan (3690 HK). Waterdrop has filed for an NYSE IPO with a placeholder amount of $100 million. Healthcare coverage in China is primarily paid by social medical insurance (29.4% of total healthcare spend), commercial insurance (3.4%) and medical crowdfunding and other social charities (0.2%), according to iResearch. The potential medical protection gap (67.0% out-of-pocket expense) is an opportunity. Driven by the significant medical protection gap and rising awareness for protection, the Chinese insurance market is expected to reach RMB7.8 trillion by 2024, representing a CAGR of 12.9% from 2019, according to iResearch. Third-party insurance brokers and agents is a key distribution channel and will account for 13.0% of the total life and health insurance premium in 2025 vs 2.5% in 2019. As a leading online third-party insurance broker, Waterdrop is well-positioned to benefit from these favourable trends. While the revenue growth rate is slowing it remains fast-paced and is accompanied by lower losses and cash burn. The key unknown is whether the changing regulations will throw a spanner in the works. Ant Financial Services Group (6688 HK), the key competitor, has seen its key CreditTech business bashed by regulations but its InsureTech business (the part that competes with Waterdrop) appears to be relatively unscathed. Notwithstanding the regulatory overhang, we believe that Waterdrop is worth a look.

Waterdrop IPO Initiation: Going for Brokers

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

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

PICC Property & Casualty H / Equity Bottom-Up

*Weaker 2H20 Results: PICC P&amp;C (2328.HK) [PICC P&amp;C] reported 2H20 earnings of CNY 7.7 bn, which declined CNY 5.5 bn or 41.7% HOH.  PICC P&amp;C reported an underwriting loss during of CNY 1.2 bn in 2H20;*Credit Insurance Remains A Trouble Spot: Credit insurance line reported the largest deterioration in underwriting results, posting a CNY 2.2 bn underwriting loss. This is most likely attributed to policies sold in 2019, in our view. Credit insurance also reported an astronomical combined ratio of 157.2%; and*Auto Enjoying Having No One On The Road: It’s unfortunate but the auto combined ratio did worsen 350 bp HOH to 98.3% - although still better than the 101.6% reported by that of Ping An P&amp;C (2318.HK).Although the combined ratio worsened, underwriting profits can be attributed to the social distancing measures implemented during 1H20, which has significantly reduced vehicle use - especially commercial vehicles (which tends to have higher claims). We view this as temporary, given how quickly mainland China is turning the page with COVID-19.

*Weaker 2H20 Results: PICC P&amp;C (2328.HK) [PICC P&amp;C] reported 2H20 earnings of CNY 7.7 bn, which declined CNY 5.5 bn or 41.7% HOH.  PICC P&amp;C reported an underwriting loss during of CNY 1.2 bn in 2H20;*Credit Insurance Remains A Trouble Spot: Credit insurance line reported the largest deterioration in underwriting results, posting a CNY 2.2 bn underwriting loss. This is most likely attributed to policies sold in 2019, in our view. Credit insurance also reported an astronomical combined ratio of 157.2%; and*Auto Enjoying Having No One On The Road: It’s unfortunate but the auto combined ratio did worsen 350 bp HOH to 98.3% - although still better than the 101.6% reported by that of Ping An P&amp;C (2318.HK).Although the combined ratio worsened, underwriting profits can be attributed to the social distancing measures implemented during 1H20, which has significantly reduced vehicle use - especially commercial vehicles (which tends to have higher claims). We view this as temporary, given how quickly mainland China is turning the page with COVID-19.   

China

ZhongAn Online P & C Insurance Co., Ltd. operates as an insurance company. The Company develops and sells health, airline, and automotive insurance, and other products. ZhongAn Online P & C Insurance also offers online consumer finance services.

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ZhongAn Online P&C Insurance C (6060 HK)

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

Waterdrop IPO Initiation: Going for Brokers

Waterdrop has filed for an NYSE IPO with a placeholder amount of $100 million. Notwithstanding the regulatory overhang, we believe that Waterdrop...

Arun George

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

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

PICC P&C – Poor Overall Results

PICC P&C: PICC P&C reported a 2H20 earnings decline 41.7% HOH. Credit insurance remains a trouble spot while auto is enjoying a temporary COVID...

Thomas J. Monaco

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