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

China Life Insurance Co H / Equity Bottom-Up

*Reserve Top Ups Weigh On Numbers This Time: China Life Insurance (2628.HK) [China Life] reported 2020 bottom-line of CNY 50.3 bn – declining CNY 8.0 bn (13.7%) YOY. Excluding the impact of the 2019 tax refund of CNY 5.2 bn, China Life’s bottom-line performance would have declined only CNY 2.8 bn or 5.3% YOY – but still down; and*Value Challenges Ahead: With value challenges ahead in China Life’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 not only question solvency margins but the viability of China Life’s full-year dividend per share – not to mention the impact of lower net yields.

*Reserve Top Ups Weigh On Numbers This Time: China Life Insurance (2628.HK) [China Life] reported 2020 bottom-line of CNY 50.3 bn – declining CNY 8.0 bn (13.7%) YOY. Excluding the impact of the 2019 tax refund of CNY 5.2 bn, China Life’s bottom-line performance would have declined only CNY 2.8 bn or 5.3% YOY – but still down; and*Value Challenges Ahead: With value challenges ahead in China Life’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 not only question solvency margins but the viability of China Life’s full-year dividend per share – not to mention the impact of lower net yields.

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

*BEA Life Deal: In an effort to reinforce its Greater China franchise, AIA Group (1299.HK) [AIA] has entered into an agreement to purchase Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life, and entered into an exclusive 15-year bancassurance relationship with BEA for HKD 5.07 bn (USD 653 mn) covering Hong Kong and mainland China; and *Lost Focus: Acquiring a fledgling Hong Kong insurance franchise at a premium when you’re the dominant player and unemployment remains excessive, suggests that AIA is more concerned with growth metrics rather than addressing the risks that AIA is facing in mainland China, Hong Kong, and in its investment portfolio.

*BEA Life Deal: In an effort to reinforce its Greater China franchise, AIA Group (1299.HK) [AIA] has entered into an agreement to purchase Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life, and entered into an exclusive 15-year bancassurance relationship with BEA for HKD 5.07 bn (USD 653 mn) covering Hong Kong and mainland China; and *Lost Focus: Acquiring a fledgling Hong Kong insurance franchise at a premium when you’re the dominant player and unemployment remains excessive, suggests that AIA is more concerned with growth metrics rather than addressing the risks that AIA is facing in mainland China, Hong Kong, and in its investment portfolio. 

AIA Group – Confirming No Organic Growth On Horizon

*A Poor Set Of Results: AIA Group (1299.HK) (AIA) reported 4Q20 Value of New Business (VONB) of USD 2.8 bn -  down 33% YOY, and net profit of USD 5.8 bn – down 3% over the period. 4Q20 VONB amounted to USD 639 mn, down 31% YOY.  The VONB decline can be attributed largely to weaker volumes and margins caused by mainland China’s new withholding tax, expense overruns in Hong Kong, along with product/mix shifts resultant of pandemic restrictions; and *No Hong Kong Rebound In Sight: The focus should remain Hong Kong, where a 66% YOY decline in VONB occurred as its border with mainland China continued to remain closed due to COVID-19 restrictions. This should continue to weigh on results over the next few quarters as well.

*A Poor Set Of Results: AIA Group (1299.HK) (AIA) reported 4Q20 Value of New Business (VONB) of USD 2.8 bn -  down 33% YOY, and net profit of USD 5.8 bn – down 3% over the period. 4Q20 VONB amounted to USD 639 mn, down 31% YOY.  The VONB decline can be attributed largely to weaker volumes and margins caused by mainland China’s new withholding tax, expense overruns in Hong Kong, along with product/mix shifts resultant of pandemic restrictions; and *No Hong Kong Rebound In Sight: The focus should remain Hong Kong, where a 66% YOY decline in VONB occurred as its border with mainland China continued to remain closed due to COVID-19 restrictions. This should continue to weigh on results over the next few quarters as well.   

*Autohome’s Hong Kong Secondary: Autohome Inc. (ATHM. US) [Autohome], a leading online destination for automobile consumers, announced the launch an offering of 27.3 mn shares (including 10.1 mn shares to be sold by Ping An Insurance (2318.HK) [Ping An]) on the Hong Kong Exchange (388.HK) [HKEX]. In this four share for one ADR deal, Ping An -  as Autohome’s largest shareholder with  49.0% of total shares – stands to crystallize a gain of HKD 7.0 bn or USD 893 mn based off its initial acquisition price per share of USD 29.55 from Telstra (TLS.AU); and  *Telegraphing Poor Insurance Going Forward: Fundamentals at Ping An’s traditional financial companies are expected to remain challenged for the longer-term. Offloading bits and pieces of their technology investments to offset its poor results should really come as no surprise. Given both the low rate and low growth environment which are major negatives for both P&amp;C and life, we question how some of the other major insurers in mainland China will remain in the black.

*Autohome’s Hong Kong Secondary: Autohome Inc. (ATHM. US) [Autohome], a leading online destination for automobile consumers, announced the launch an offering of 27.3 mn shares (including 10.1 mn shares to be sold by Ping An Insurance (2318.HK) [Ping An]) on the Hong Kong Exchange (388.HK) [HKEX]. In this four share for one ADR deal, Ping An -  as Autohome’s largest shareholder with  49.0% of total shares – stands to crystallize a gain of HKD 7.0 bn or USD 893 mn based off its initial acquisition price per share of USD 29.55 from Telstra (TLS.AU); and  *Telegraphing Poor Insurance Going Forward: Fundamentals at Ping An’s traditional financial companies are expected to remain challenged for the longer-term. Offloading bits and pieces of their technology investments to offset its poor results should really come as no surprise. Given both the low rate and low growth environment which are major negatives for both P&amp;C and life, we question how some of the other major insurers in mainland China will remain in the black.  

Ping An Insurance – Autohome’s Turn To Offset Bad Insurance Fundamentals

China

China Reinsurance (Group) Corporation is a reinsurance company. The company operates four principal business segments, consisting of P&C reinsurance, life and health reinsurance, primary P&C insurance and asset management businesses.

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China Reinsurance (Group) (1508 HK)

China Life Insurance – Not So Good

CHINA LIFE: China Life reported a 13.7% YOY decline in 2020 bottom-line. With value challenges ahead in China Life’s illiquid securities portfolio,...

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

AIA Group – Confirming No Organic Growth On Horizon

AIA GROUP: AIA entered into an agreement to acquire BEA Life, and entered into a bancassurance relationship with BEA. Acquiring a fledgling Hong...

Thomas J. Monaco

AIA Group – Low Base Leverage

AIA GROUP: AIA posted a 4Q20 VONB decline of 33% YOY, largely due to weaker volumes and margins, expense overruns, and product/mix shifts due to...

Thomas J. Monaco

Ping An Insurance – Autohome’s Turn To Offset Bad Insurance Fundamentals

PING AN INSURANCE: Autohome announced the launch a secondary offering of 27.3 mn shares on the HKEX. Ping An stands to crystallize USD 893 mn based...

Thomas J. Monaco

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