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

Thematic (Sector/Industry)

*Reversing Course Again: On April 3, 2020, the European Insurance and Occupational Pensions Authority (EIOPA) - the European Union’s financial regulatory body which replaced the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) – in the context of the corona virus, released a statement urging insurers to “temporarily suspend all discretionary dividend distributions and share buybacks aimed at remunerating shareholders” in order to preserve capital. In an odd reversal of course, EIOPA has updated its commentary surrounding European insurance capital management; and  *Asia-Pacific Insurers Still At Risk: Asia-Pacific insurance counterparts previously acted in capital solidarity with their Western peer during COVID-19. Many Asia-Pacific insurers purchased USD-denominated assets in their desperate search for yield in this low/negative rate environment where the impact of credit default and ratings agency downgrades on their investment portfolios is likely to continue to be outsized and challenge capital their ratios. We are hopeful that the Asia-Pacific insurers - particularly in Japan, Australia, Taiwan, and South Korea – don’t behave as desperately as their European counterparts have.

*Reversing Course Again: On April 3, 2020, the European Insurance and Occupational Pensions Authority (EIOPA) - the European Union’s financial regulatory body which replaced the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) – in the context of the corona virus, released a statement urging insurers to “temporarily suspend all discretionary dividend distributions and share buybacks aimed at remunerating shareholders” in order to preserve capital. In an odd reversal of course, EIOPA has updated its commentary surrounding European insurance capital management; and  *Asia-Pacific Insurers Still At Risk: Asia-Pacific insurance counterparts previously acted in capital solidarity with their Western peer during COVID-19. Many Asia-Pacific insurers purchased USD-denominated assets in their desperate search for yield in this low/negative rate environment where the impact of credit default and ratings agency downgrades on their investment portfolios is likely to continue to be outsized and challenge capital their ratios. We are hopeful that the Asia-Pacific insurers - particularly in Japan, Australia, Taiwan, and South Korea – don’t behave as desperately as their European counterparts have. 

Equity Bottom-Up

*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

*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.  

*Yongcheng Coal Default: According to Shanghai Clearing House, Yongcheng Coal and Electricity (YCE) in Henan Province failed to repay a CNY 1 bn (USD 151 mn) short-term bond despite being given the highest rating by one of mainland China’s awful domestic credit ratings agencies; and*Watch Your Banks: The yield on benchmark five-year “AAA” rated mainland Chinese corporates was 3.99% - up over 100 bp from their April 2020 low. Investor flight is pushing financing costs higher and squeezing local corporate funding in a market which is just barely recovering from the COVID-19 pandemic. Concerns remain over higher problem loans as debt service risk is heightened over higher rates, unreliable financial statements and ratings agency reports, and now an inability to refinance public debt with a number of bond sales being canceled. Further, the degradation of corporate bond values is limiting their usage as collateral.

*Yongcheng Coal Default: According to Shanghai Clearing House, Yongcheng Coal and Electricity (YCE) in Henan Province failed to repay a CNY 1 bn (USD 151 mn) short-term bond despite being given the highest rating by one of mainland China’s awful domestic credit ratings agencies; and*Watch Your Banks: The yield on benchmark five-year “AAA” rated mainland Chinese corporates was 3.99% - up over 100 bp from their April 2020 low. Investor flight is pushing financing costs higher and squeezing local corporate funding in a market which is just barely recovering from the COVID-19 pandemic. Concerns remain over higher problem loans as debt service risk is heightened over higher rates, unreliable financial statements and ratings agency reports, and now an inability to refinance public debt with a number of bond sales being canceled. Further, the degradation of corporate bond values is limiting their usage as collateral.

China

New China Life Insurance Company Ltd. provides life insurance services. The Company provides life insurance, accident insurance, health insurance products, and other related insurance products. New China Life Insurance offers services in China.

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New China Life Insurance (1336 HK)

Asian Insurers – Mea, Mea EIOPA

ASIA INSURERS: On April 3, 2020, EIOPA temporarily suspended capital management activities," but just reversed course. Many Asia-Pacific insurers...

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

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

Another Day, Another Default

MAINLAND CHINA DEFAULT: Yongcheng Coal Defaulted On Its Debt, Leading To Concerns About The Credibility Of AAA Rated Corporates In Mainland China...

Thomas J. Monaco

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