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

People's Insurance (PICC) / Equity Bottom-Up

*Improving Profitability: PICC Group (1339.HK) [People’s] reported 1Q21 net profit after tax of CNY 10.0 bn, increasing by a whopping CNY 8.7 bn mn (6.7x) on a linked quarter basis. The linked quarter improvement can be attributed both to the PICC Life and PICC P&amp;C (2328.HK) whose bottom-line’s improved CNY 4.4 bn (vs a loss of CNY 1.8 bn in 4Q20) and CNY 3.8 bn (156.3%) - accounting for 61% and 27% of the group's earnings;  and *PICC P&amp;C Posts Big Expense Improvement: PICC P&amp;C (2328.HK) reported a 1Q21 net profit of CNY 8.9 bn, increasing 156.3% linked quarter. The overall combined ratio declined from 101.3% in 4Q20 to 95.7%. Compositionally, the overall expense ratio decreased 650 bp linked quarter to 25.4%, while the loss ratio increased 90 bp to 70.3%, reflecting a change in auto insurer’s cost structure after implementing pricing reforms.

*Improving Profitability: PICC Group (1339.HK) [People’s] reported 1Q21 net profit after tax of CNY 10.0 bn, increasing by a whopping CNY 8.7 bn mn (6.7x) on a linked quarter basis. The linked quarter improvement can be attributed both to the PICC Life and PICC P&amp;C (2328.HK) whose bottom-line’s improved CNY 4.4 bn (vs a loss of CNY 1.8 bn in 4Q20) and CNY 3.8 bn (156.3%) - accounting for 61% and 27% of the group's earnings;  and *PICC P&amp;C Posts Big Expense Improvement: PICC P&amp;C (2328.HK) reported a 1Q21 net profit of CNY 8.9 bn, increasing 156.3% linked quarter. The overall combined ratio declined from 101.3% in 4Q20 to 95.7%. Compositionally, the overall expense ratio decreased 650 bp linked quarter to 25.4%, while the loss ratio increased 90 bp to 70.3%, reflecting a change in auto insurer’s cost structure after implementing pricing reforms. 

HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Thematic (Sector/Industry)

As an important supplement to China's basic medical insurance and an integral part of the multi-level medical security system, commercial health insurance has developed rapidly in recent years. The product structure, market scale, insured population and service connotation of commercial health insurance have undergone tremendous changes. However, it is undeniable that compared with other mature markets, the market of commercial health insurance in China still needs to be further explored, and the insurance products and service models also need to be continuously innovated. In particular, how to keep up with the pace of the times, meet the needs of the market, and constantly realize the iterative upgrading of health insurance products and services, so as to meet the diversified and personalized health insurance needs of people based on the inclusive basic medical insurance is undoubtedly a new subject for domestic commercial health insurance companies.

As an important supplement to China's basic medical insurance and an integral part of the multi-level medical security system, commercial health insurance has developed rapidly in recent years. The product structure, market scale, insured population and service connotation of commercial health insurance have undergone tremendous changes. However, it is undeniable that compared with other mature markets, the market of commercial health insurance in China still needs to be further explored, and the insurance products and service models also need to be continuously innovated. In particular, how to keep up with the pace of the times, meet the needs of the market, and constantly realize the iterative upgrading of health insurance products and services, so as to meet the diversified and personalized health insurance needs of people based on the inclusive basic medical insurance is undoubtedly a new subject for domestic commercial health insurance companies.

Industry Report - Insights on China Commercial Health Insurance Industry

*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.

*AIA Needs To Slow It Down: Until recently AIA Group (1299.HK) [AIA] operated just five mainland Chinese provincial licenses. With Hong Kong falling down, mainland China has become AIA’s largest market in 2020, contributing 35% to AIA’s VONB. Concerned about weakening organic growth, AIA has gone on a deal-making spree: Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life; an exclusive 15-year bancassurance relationship with BEA; acquisition of Blue Cross (Asia-Pacific) Insurance’s underwritten closed life insurance; a strategic digital partnership with ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn]; and and received CBIRC approval to restructure its Shanghai-based life insurance branch into a wholly-owned subsidiary; and  *Risks Of Aggressive Mainland Push: In addition to the massive managerial distractions with so many deals at one time, there are negative tax implications for mainland Chinese subsidiaries versus branches; challenges of bogusly rated AAA mainland Chinese bonds; no end in sight with its flailing Hong Kong flagship; getting the BEA Life team on the same with AIA Hong Kong; and potential impairments its USD-based investment portfolio.

*AIA Needs To Slow It Down: Until recently AIA Group (1299.HK) [AIA] operated just five mainland Chinese provincial licenses. With Hong Kong falling down, mainland China has become AIA’s largest market in 2020, contributing 35% to AIA’s VONB. Concerned about weakening organic growth, AIA has gone on a deal-making spree: Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life; an exclusive 15-year bancassurance relationship with BEA; acquisition of Blue Cross (Asia-Pacific) Insurance’s underwritten closed life insurance; a strategic digital partnership with ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn]; and and received CBIRC approval to restructure its Shanghai-based life insurance branch into a wholly-owned subsidiary; and  *Risks Of Aggressive Mainland Push: In addition to the massive managerial distractions with so many deals at one time, there are negative tax implications for mainland Chinese subsidiaries versus branches; challenges of bogusly rated AAA mainland Chinese bonds; no end in sight with its flailing Hong Kong flagship; getting the BEA Life team on the same with AIA Hong Kong; and potential impairments its USD-based investment portfolio. 

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

The Ping An A-shares <a href="https://www.smartkarma.com/entities/ping-an-insurance-group-co-of-china" target="_blank" data-smartkarma-citation="entities:24682:1" rel="noopener">Ping An Insurance Group Co Of China (601318 CH)</a> are trading at parity versus the H-shares <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a>. This continues the cycle of premiums and discounts going back to 2015.The last time the A-shares traded at parity to the H-shares was in July last year. Since then, the premium of A-shares to H-shares touched a high of over 16% before moving lower to trade at parity again.With the Ping An A-shares trading at parity versus the H-shares, the risk/reward is attractive to setting up a premium expansion trade.In this Insight, we look at the historical premium for Ping An and compare it to the premium on the AH index and other large caps, and look at some catalysts that could lead to an expansion of the premium.

The Ping An A-shares Ping An Insurance Group Co Of China (601318 CH) are trading at parity versus the H-shares Ping An Insurance (H) (2318 HK). This continues the cycle of premiums and discounts going back to 2015.The last time the A-shares traded at parity to the H-shares was in July last year. Since then, the premium of A-shares to H-shares touched a high of over 16% before moving lower to trade at parity again.With the Ping An A-shares trading at parity versus the H-shares, the risk/reward is attractive to setting up a premium expansion trade.In this Insight, we look at the historical premium for Ping An and compare it to the premium on the AH index and other large caps, and look at some catalysts that could lead to an expansion of the premium.

Ping An A/H Premium: Nearing a Discount; Set Up for Expansion

China

China Pacific Insurance (Group) Company, Ltd. is an integrated insurance services provider. The Company offers life and property insurance products through its subsidiaries.

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China Pacific Insurance (2601 HK)

PICC Group – Big Print

PICC GROUP: PICC reported QOQ 1Q21 net profit growth of 6.7x, attributed both to the PICC Life and PICC P&C (2328.HK) whose bottom-line’s each...

Thomas J. Monaco

Industry Report - Insights on China Commercial Health Insurance Industry

This article mainly analyzed the current situation, market potential, industry characteristics, challenges and future trends of China commercial...

Xinyao (Criss) Wang

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

AIA Group – Headlong Into China

AIA GROUP: Concerned about weakening organic growth, AIA has gone on a deal-making spree, leading to massive managerial distractions. Fundamental...

Thomas J. Monaco

Ping An A/H Premium: Nearing a Discount; Set Up for Expansion

With the Ping An Insurance A-shares trading at parity to the H-shares, the risk/reward favours an AH Premium expansion trade. Watch for change in H...

Brian Freitas

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