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

*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

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.

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

At long last, Hang Seng Indexes (HSIL) has released the consultation paper on the "Proposal to enhance the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market". Market participants have until 24 January to submit their views to the HSIL.There are 5 main proposals in the consultation paper:<ol>
<li>Select constituents by industry group based on a target coverage for each industry group</li>
<li>Increase the number of constituents to between 65 to 80</li>
<li>Removal of the Minimum Listing History requirement for eligible candidates</li>
<li>Maintain a certain number of constituents classified as Hong Kong companies to sustain the level of representation of Hong Kong portion in the index</li>
<li>Lower the weighting cap of individual constituents from 10% to 8%, and increase the weighting cap of WVRs and Secondary Listings from 5% to 8%.</li>
</ol>The simulated one-way turnover of increasing the number of constituents to between 65-80 is estimated at 15-20% and HSIL proposes to implement the transition to the enhanced methodology within one year.In this Insight, we look at the impact on the index from the proposed changes.

At long last, Hang Seng Indexes (HSIL) has released the consultation paper on the "Proposal to enhance the Hong Kong Hang Seng Index (HSI INDEX) as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market". Market participants have until 24 January to submit their views to the HSIL.There are 5 main proposals in the consultation paper:
Select constituents by industry group based on a target coverage for each industry group
Increase the number of constituents to between 65 to 80
Removal of the Minimum Listing History requirement for eligible candidates
Maintain a certain number of constituents classified as Hong Kong companies to sustain the level of representation of Hong Kong portion in the index
Lower the weighting cap of individual constituents from 10% to 8%, and increase the weighting cap of WVRs and Secondary Listings from 5% to 8%.
The simulated one-way turnover of increasing the number of constituents to between 65-80 is estimated at 15-20% and HSIL proposes to implement the transition to the enhanced methodology within one year.In this Insight, we look at the impact on the index from the proposed changes.

HSI Market Consultation - Wide Ranging Changes Proposed

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. 

*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

China

China Life Insurance Company Ltd. offers a wide range of life, accident, and health insurance products and services.

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China Life Insurance Co H (2628 HK)

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

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

HSI Market Consultation - Wide Ranging Changes Proposed

HSIL has announced the market consultation for the Hang Seng Index. The conclusions should be announced in February. If the market agrees to most...

Brian Freitas

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

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