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

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

*June Premium: ZhongAn Online P&amp;C Insurance (6060.HK) [ZhongAn] reported June 2021 premium growth of 49% YoY, ending 1H21 with gross written premium (GWP) growth of 45% YOY. Two factors contributed to the overall growth: 1) COVID-19 recovery; and 2) the low base in 2020; and*Bottom-line Challenges Remain: The fact of the matter is that ZhongAn’s bottom-line remains challenged. Auto and Consumer Finance have decelerating and declining turnover growth given the continued COVID-19 business disruptions. While YOY combined ratio improved, the improvement came largely from credit insurance whose loss ratio declined from 97% in 2019 to 63%. Given the continued credit insurance headaches at PICC P&amp;C (2328.HK) and Ping An Insurance, we have a difficult time believing that little old ZhongAn has figured out the secret sauce to credit insurance risk.

*June Premium: ZhongAn Online P&amp;C Insurance (6060.HK) [ZhongAn] reported June 2021 premium growth of 49% YoY, ending 1H21 with gross written premium (GWP) growth of 45% YOY. Two factors contributed to the overall growth: 1) COVID-19 recovery; and 2) the low base in 2020; and*Bottom-line Challenges Remain: The fact of the matter is that ZhongAn’s bottom-line remains challenged. Auto and Consumer Finance have decelerating and declining turnover growth given the continued COVID-19 business disruptions. While YOY combined ratio improved, the improvement came largely from credit insurance whose loss ratio declined from 97% in 2019 to 63%. Given the continued credit insurance headaches at PICC P&amp;C (2328.HK) and Ping An Insurance, we have a difficult time believing that little old ZhongAn has figured out the secret sauce to credit insurance risk.

ZhongAn Online P&C Insurance – Still A Dumpster Fire

*Capital Hole Develops In USA:The 1Q21 regulatory financial statement for Prudential plc’s (PRU.LN) [Prudential] Jackson National (Jackson) subsidiary shows that statutory equity has declined a surprising USD 1.9 bn (39.6%) to USD 2.9 bn on a linked quarter basis at 1Q21; and *Franchise Of The Future: Nevertheless, we see Prudential's exiting of its US business is a positive (albeit likely more costly now) as it will reduce the group's exposure to US macro and transition the group into a pure Asian play. We believe that PRU’s Asian franchise is impressive with a strong growth outlook.

*Capital Hole Develops In USA:The 1Q21 regulatory financial statement for Prudential plc’s (PRU.LN) [Prudential] Jackson National (Jackson) subsidiary shows that statutory equity has declined a surprising USD 1.9 bn (39.6%) to USD 2.9 bn on a linked quarter basis at 1Q21; and *Franchise Of The Future: Nevertheless, we see Prudential's exiting of its US business is a positive (albeit likely more costly now) as it will reduce the group's exposure to US macro and transition the group into a pure Asian play. We believe that PRU’s Asian franchise is impressive with a strong growth outlook.

*Adding More Complexity In Mainland China: AIA’s hyper-aggressive push into mainland China via acquisition as company fundamentals remain poor. This push unfortunately continues. On June 29, 2020, AIA Group (1299.HK) [AIA] announced that it has agreed to invest USD 1.86 bn (CNY 12 bn) in cash for a 24.99% stake in China Post Life (CPL), a subsidiary of China Post Group via its Hong Kong subsidiary, AIA Company Ltd; *Head Scratching Move: The CPL deal makes little sense financially, gives AIA no managerial or Board control, is limited to an equity investment without other business cooperation;  and directly competes with AIA China – despite management spin on the matter;  and *Suffocating Hong Kong Business: AIA’s core Hong Kong business has been an unmitigated disaster for during COVID-19, as it struggles with mainland Chinese visitors. Further, there is limited clarity on AIA’s legacy agents. It also has to deal with the fledgling Bank of East Asia (23.HK) business that it recently acquired.

*Adding More Complexity In Mainland China: AIA’s hyper-aggressive push into mainland China via acquisition as company fundamentals remain poor. This push unfortunately continues. On June 29, 2020, AIA Group (1299.HK) [AIA] announced that it has agreed to invest USD 1.86 bn (CNY 12 bn) in cash for a 24.99% stake in China Post Life (CPL), a subsidiary of China Post Group via its Hong Kong subsidiary, AIA Company Ltd; *Head Scratching Move: The CPL deal makes little sense financially, gives AIA no managerial or Board control, is limited to an equity investment without other business cooperation;  and directly competes with AIA China – despite management spin on the matter;  and *Suffocating Hong Kong Business: AIA’s core Hong Kong business has been an unmitigated disaster for during COVID-19, as it struggles with mainland Chinese visitors. Further, there is limited clarity on AIA’s legacy agents. It also has to deal with the fledgling Bank of East Asia (23.HK) business that it recently acquired. 

AIA – Now Competing With Itself In China

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Thematic (Sector/Industry)

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. Companies mentioned this week:<a href="https://www.smartkarma.com/entities/aia-group-ltd" target="_blank" data-smartkarma-citation="entities:14895:1" rel="noopener">AIA Group Ltd (1299 HK)</a>, <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Chuxing (DIDI US)</a>

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. Companies mentioned this week:AIA Group Ltd (1299 HK), DiDi Chuxing (DIDI US)

Global Emerging Markets Weekly: 2 July 2021

Founder of Antler Capital

Stanley Tsai, CFA

AIA <a href="https://www.smartkarma.com/entities/aia-group-ltd" target="_blank" data-smartkarma-citation="entities:14895:1" rel="noopener">(1299 HK)</a> 
AIA's proposed USD1.86bn minority investment in China Post Life marks a notable deviation from its long-held belief in maintaining control over its key operations. The transaction is touted as a barbell strategy that will give AIA's shareholders access to high-net worth clients on the one hand and the mass market on the other. In our view, the economics to China Post Life are clear, but the benefits to AIA may be more subtle (Exhibit 1).
The deal is fairly immaterial to AIA financially. At 1.34x historical P/B, the investment represents less than 0.6% of AIA's assets and 0.3% its IFRS capital. Valuation is in line with New China Life-A's <a href="https://www.smartkarma.com/entities/new-china-life-insurance-co-ltd" target="_blank" data-smartkarma-citation="entities:43:1" rel="noopener">(601336 CH)</a>, but we don't believe AIA is in it to turn a quick profit.
China Post Life stands to benefit almost immediately. The cash injection will boost the insurer's core solvency ratio from 110% to above 200%. But much more important is the promise of product ramp-ups, service upgrades, and sales training. On these fronts, China Post Life will be learning from the best.
The benefits AIA derives from the deal may be somewhat less tangible, but no less significant. The investment places the Hong Kong-based insurer front and center in the country's drive to widen the mass market's financial access. The unique position of the China Postal Group may open other doors down the road.
We are naturally skeptical of all insurance M&amp;As and joint ventures as so few of them have worked globally. That said, financial and executive risks seem to be well contained with the China Post Life transaction. While it may be an overstatement to call this transaction politically motivated, the potential regulatory and policy tailwinds it promises must be the envy of many of AIA's competitors.
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 100%;">Exhibit 1: AIA's China Footprint</td>
</tr>
<tr>
<td style="width: 100%;">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/216/534/original/image_81757729821625228313721.png?1625228314" class="editor-image img-responsive" data-smartkarma-image-id="216534"></figure>
Source: China Banking and Insurance Regulatory Commission (CBIRC), National Bureau of Statistics, Company disclosures, Our analysis
</td>
</tr>
</tbody>
</table>
Related Insight
<ul>
<li>
<a href="https://www.smartkarma.com/insights/china-financials-silver-linings-playbook" target="_blank" data-smartkarma-citation="insights:53013" rel="noopener">China Financials: Silver Linings Playbook</a> </li>
</ul>

AIA (1299 HK) 
AIA's proposed USD1.86bn minority investment in China Post Life marks a notable deviation from its long-held belief in maintaining control over its key operations. The transaction is touted as a barbell strategy that will give AIA's shareholders access to high-net worth clients on the one hand and the mass market on the other. In our view, the economics to China Post Life are clear, but the benefits to AIA may be more subtle (Exhibit 1).
The deal is fairly immaterial to AIA financially. At 1.34x historical P/B, the investment represents less than 0.6% of AIA's assets and 0.3% its IFRS capital. Valuation is in line with New China Life-A's (601336 CH), but we don't believe AIA is in it to turn a quick profit.
China Post Life stands to benefit almost immediately. The cash injection will boost the insurer's core solvency ratio from 110% to above 200%. But much more important is the promise of product ramp-ups, service upgrades, and sales training. On these fronts, China Post Life will be learning from the best.
The benefits AIA derives from the deal may be somewhat less tangible, but no less significant. The investment places the Hong Kong-based insurer front and center in the country's drive to widen the mass market's financial access. The unique position of the China Postal Group may open other doors down the road.
We are naturally skeptical of all insurance M&amp;As and joint ventures as so few of them have worked globally. That said, financial and executive risks seem to be well contained with the China Post Life transaction. While it may be an overstatement to call this transaction politically motivated, the potential regulatory and policy tailwinds it promises must be the envy of many of AIA's competitors.



Exhibit 1: AIA's China Footprint




Source: China Banking and Insurance Regulatory Commission (CBIRC), National Bureau of Statistics, Company disclosures, Our analysis




Related Insight


China Financials: Silver Linings Playbook 


AIA / China Post Life Deal: A Worthwhile Excursion

Hong Kong

AIA Group Limited offers insurance and financial services. The Company writes life insurance for individuals, businesses, accident, and health insurance, as well as retirement planning and wealth management services.

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AIA Group Ltd (1299 HK)

ZhongAn Online P&C Insurance – Still A Dumpster Fire

ZhongAn Online: ZhongAn reported June 2021 premium growth of 49% YoY. Two factors contributed to the growth: COVID-19 recovery; and low base in...

Thomas J. Monaco

Prudential Plc - Jackson Cracks

PRUDENTIAL: The 1Q21 regulatory financial statement for the Jackson National subsidiary exhibits that statutory equity declined a surprising USD...

Thomas J. Monaco

AIA – Now Competing With Itself In China

AIA GROUP: AIA’s aggressive push into China continues with its 25% stake in China Post Life. The deal makes little sense financially, gives AIA no...

Thomas J. Monaco

Global Emerging Markets Weekly: 2 July 2021

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity...

Wium Malan, CFA

AIA / China Post Life Deal: A Worthwhile Excursion

AIA's proposed investment in China Post Life may be immaterial financially, but it may deliver intangible benefits in the way of regulatory and...

Stanley Tsai, CFA

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