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

*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

PICC Property & Casualty H / Equity Bottom-Up

*Weaker 2H20 Results: PICC P&amp;C (2328.HK) [PICC P&amp;C] reported 2H20 earnings of CNY 7.7 bn, which declined CNY 5.5 bn or 41.7% HOH.  PICC P&amp;C reported an underwriting loss during of CNY 1.2 bn in 2H20;*Credit Insurance Remains A Trouble Spot: Credit insurance line reported the largest deterioration in underwriting results, posting a CNY 2.2 bn underwriting loss. This is most likely attributed to policies sold in 2019, in our view. Credit insurance also reported an astronomical combined ratio of 157.2%; and*Auto Enjoying Having No One On The Road: It’s unfortunate but the auto combined ratio did worsen 350 bp HOH to 98.3% - although still better than the 101.6% reported by that of Ping An P&amp;C (2318.HK).Although the combined ratio worsened, underwriting profits can be attributed to the social distancing measures implemented during 1H20, which has significantly reduced vehicle use - especially commercial vehicles (which tends to have higher claims). We view this as temporary, given how quickly mainland China is turning the page with COVID-19.

*Weaker 2H20 Results: PICC P&amp;C (2328.HK) [PICC P&amp;C] reported 2H20 earnings of CNY 7.7 bn, which declined CNY 5.5 bn or 41.7% HOH.  PICC P&amp;C reported an underwriting loss during of CNY 1.2 bn in 2H20;*Credit Insurance Remains A Trouble Spot: Credit insurance line reported the largest deterioration in underwriting results, posting a CNY 2.2 bn underwriting loss. This is most likely attributed to policies sold in 2019, in our view. Credit insurance also reported an astronomical combined ratio of 157.2%; and*Auto Enjoying Having No One On The Road: It’s unfortunate but the auto combined ratio did worsen 350 bp HOH to 98.3% - although still better than the 101.6% reported by that of Ping An P&amp;C (2318.HK).Although the combined ratio worsened, underwriting profits can be attributed to the social distancing measures implemented during 1H20, which has significantly reduced vehicle use - especially commercial vehicles (which tends to have higher claims). We view this as temporary, given how quickly mainland China is turning the page with COVID-19.   

*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

China Merchants Bank H / Equity Bottom-Up

*Weak 4Q20 Bottom-Line: China Merchants Bank (3968.HK) [CMB] pre-announced a poor set of 4Q20 results. On March 19, 2020, the finals were disclosed and the results were even uglier than anticipated. While its true that net profit declined CNY 6.1 bn (22.7%) on a linked quarter basis to CNY 20.9 bn –despite having its tax rate decline 790 bp to 15.6% over the period, core operating results came in at just CNY 13.9 bn – declining CNY 9.3 bn or 40.0% linked quarter;  and *Best Retail Franchise Hitting Credit Wall: While CMB has the best retail franchise in mainland China, credit risk has substantially increased in 4Q20. More worrisome is the net new NPL increase of CNY 14.8 bn, representing an annualized increase in net new NPLs of 104.7%. Provided (and its not a stretch) that the net new NPL ratio trajectory holds, reserve cover of NPLs will drop to 213% - suggesting even the mighty are falling.

*Weak 4Q20 Bottom-Line: China Merchants Bank (3968.HK) [CMB] pre-announced a poor set of 4Q20 results. On March 19, 2020, the finals were disclosed and the results were even uglier than anticipated. While its true that net profit declined CNY 6.1 bn (22.7%) on a linked quarter basis to CNY 20.9 bn –despite having its tax rate decline 790 bp to 15.6% over the period, core operating results came in at just CNY 13.9 bn – declining CNY 9.3 bn or 40.0% linked quarter;  and *Best Retail Franchise Hitting Credit Wall: While CMB has the best retail franchise in mainland China, credit risk has substantially increased in 4Q20. More worrisome is the net new NPL increase of CNY 14.8 bn, representing an annualized increase in net new NPLs of 104.7%. Provided (and its not a stretch) that the net new NPL ratio trajectory holds, reserve cover of NPLs will drop to 213% - suggesting even the mighty are falling. 

China Merchants Bank – Pulling On All Levers

*Another Poor Set Of Results Expected: Pre-market on March 12, 2021, AIA Group (1299.HK) [AIA] is set to release its 4Q20/full year  results. By our calculation, AIA’s overall Value of New Business (VONB) is expected to decline 33% YOY on a constant exchange rate basis – declining on a linked quarter basis, due largely to weaker volumes and margins.AIA’s product mix remains sub-optimal with the single premium product remaining the focus due to the COVID-19 impact on face-to-face agency sales;  and *No Hong Kong Rebound In Sight: The focus should remain Hong Kong, where a 60% plus YOY decline in VONB would not be out of the question 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.

*Another Poor Set Of Results Expected: Pre-market on March 12, 2021, AIA Group (1299.HK) [AIA] is set to release its 4Q20/full year  results. By our calculation, AIA’s overall Value of New Business (VONB) is expected to decline 33% YOY on a constant exchange rate basis – declining on a linked quarter basis, due largely to weaker volumes and margins.AIA’s product mix remains sub-optimal with the single premium product remaining the focus due to the COVID-19 impact on face-to-face agency sales;  and *No Hong Kong Rebound In Sight: The focus should remain Hong Kong, where a 60% plus YOY decline in VONB would not be out of the question 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. 

AIA Group – 4Q Results Likely To Remain Very Challenging

China

Ping An Insurance (Group) Company of China Limited provides products and services through its five ecosystems in financial services, healthcare, auto services, real estate services and Smart City solutions. The Group's insurance business writes property, casualty, and life insurance products.

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Ping An Insurance Group of (PNGAY US)

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

PICC P&C – Poor Overall Results

PICC P&C: PICC P&C reported a 2H20 earnings decline 41.7% HOH. Credit insurance remains a trouble spot while auto is enjoying a temporary COVID...

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

China Merchants Bank – Pulling On All Levers

CHINA MERCHANTS BANK: CMB's core operating results came in at just CNY 13.9 bn – declining 40.0% linked quarter. Negative operating jaws, and net...

Thomas J. Monaco

AIA Group – 4Q Results Likely To Remain Very Challenging

AIA GROUP: Pre-market on March 12th, AIA is to release 4Q20/full year results. AIA’s overall VONB is expected to decline 33% YOY- due largely to...

Thomas J. Monaco

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