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

*Another Poor Set Of Results Expected: Pre-market on November 11, 2020, AIA Group (1299.HK) [AIA] is set to release its usual limited set of results. By our calculation, AIA’s overall Value of New Business (VONB) is expected to decline 30% YOY on a constant exchange rate basis – remaining flat on a linked quarter basis, however - due largely to weaker volumes and margins; *It’s More Than VONB: 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. Equity markets where AIA operates had setbacks: Hong Kong (down 4%); Singapore (down 5%); and Thailand (down 8%). AIA’s EV also suffered an 8% impairment due to an investment portfolio challenges – which is a continued worry for us given the global economic challenges that all corporates and sovereigns are facing; 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 November 11, 2020, AIA Group (1299.HK) [AIA] is set to release its usual limited set of results. By our calculation, AIA’s overall Value of New Business (VONB) is expected to decline 30% YOY on a constant exchange rate basis – remaining flat on a linked quarter basis, however - due largely to weaker volumes and margins; *It’s More Than VONB: 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. Equity markets where AIA operates had setbacks: Hong Kong (down 4%); Singapore (down 5%); and Thailand (down 8%). AIA’s EV also suffered an 8% impairment due to an investment portfolio challenges – which is a continued worry for us given the global economic challenges that all corporates and sovereigns are facing; 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 – 3Q Results Will Remain Very Challenging

*Healthcare Ecosystem Discussed: Ping An Insurance (2318.HK) [Ping An] hosted a healthcare ecosystem investor day on September 22nd in Shenzhen. Ping An stressed that it has already built the largest online healthcare user portal; one of the largest off-line networks of medical providers; and the leading healthcare technology capabilities. Ping An reaffirmed its long-term strategic ambitions for healthcare and health technology with its announcement to invest another CNY 20-30 bn; *Investment Push Into Healthcare:For the next five years, we anticipate another CNY 100 bn to be invested in R&amp;D, but the healthcare ecosystem will be allocated an even larger percentage at 20%-30%; and*Fundamentally Challenged Still: Despite the cheerleading session,Ping An P&amp;C operating profits declined CNY 2.6 bn (29.2%) HOH in 1H20, as the overall combined ratio eroded 1.5% to 98.1% due primarily to continued weakness within the credit insurance unit where the combined ratio came in at 125.6% (up 32.4%). The credit insurance segment reported a CNY 3.5 bn underwriting loss, due to defaults on underlying loans.

*Healthcare Ecosystem Discussed: Ping An Insurance (2318.HK) [Ping An] hosted a healthcare ecosystem investor day on September 22nd in Shenzhen. Ping An stressed that it has already built the largest online healthcare user portal; one of the largest off-line networks of medical providers; and the leading healthcare technology capabilities. Ping An reaffirmed its long-term strategic ambitions for healthcare and health technology with its announcement to invest another CNY 20-30 bn; *Investment Push Into Healthcare:For the next five years, we anticipate another CNY 100 bn to be invested in R&amp;D, but the healthcare ecosystem will be allocated an even larger percentage at 20%-30%; and*Fundamentally Challenged Still: Despite the cheerleading session,Ping An P&amp;C operating profits declined CNY 2.6 bn (29.2%) HOH in 1H20, as the overall combined ratio eroded 1.5% to 98.1% due primarily to continued weakness within the credit insurance unit where the combined ratio came in at 125.6% (up 32.4%). The credit insurance segment reported a CNY 3.5 bn underwriting loss, due to defaults on underlying loans.

Thematic (Sector/Industry)

*High Court Ruling: The United Kingdom High Court ruled on a test case brought forth by the Financial Conduct Authority (FCA) indicates that the "COVID-19 pandemic and the government and public response were a single cause of the covered loss, which is a key requirement for claims to be paid even if the policy provides cover". The decision on th Business Interruption (BI) case against the insurance industry is mostly in favorable to policyholders; and *Asia-Pac To Follow: As many countries in Asia-Pacific are Common Law nations, High Court rulings such as this have a tendency to set precedent. It also wouldn’t be a surprise to see significant capital raises given the challenges to solvency.

*High Court Ruling: The United Kingdom High Court ruled on a test case brought forth by the Financial Conduct Authority (FCA) indicates that the "COVID-19 pandemic and the government and public response were a single cause of the covered loss, which is a key requirement for claims to be paid even if the policy provides cover". The decision on th Business Interruption (BI) case against the insurance industry is mostly in favorable to policyholders; and *Asia-Pac To Follow: As many countries in Asia-Pacific are Common Law nations, High Court rulings such as this have a tendency to set precedent. It also wouldn’t be a surprise to see significant capital raises given the challenges to solvency.  

Asian Insurers – High Court Ruling A Harbinger For Region

*PAL Leads Improvement: 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%); and *P&amp;C Remains A Challenge: Ping An P&amp;C operating profits declined CNY 2.6 bn (29.2%) HOH, as the overall combined ratio eroded 1.5% to 98.1% due primarily to continued weakness within the credit insurance unit where the combined ratio came in at 125.6% (up 32.4%). The credit insurance segment reported a CNY 3.5 bn underwriting loss, due to defaults on underlying loans. Auto combined ratio improved temporarily during the lockdown by 360 bp to 94.7%, and certainly warrants watching a driving returns to normal in mainland China.

*PAL Leads Improvement: 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%); and *P&amp;C Remains A Challenge: Ping An P&amp;C operating profits declined CNY 2.6 bn (29.2%) HOH, as the overall combined ratio eroded 1.5% to 98.1% due primarily to continued weakness within the credit insurance unit where the combined ratio came in at 125.6% (up 32.4%). The credit insurance segment reported a CNY 3.5 bn underwriting loss, due to defaults on underlying loans. Auto combined ratio improved temporarily during the lockdown by 360 bp to 94.7%, and certainly warrants watching a driving returns to normal in mainland China.

Ping An Insurance – Life Showing Signs Of Life

PICC Property & Casualty H / Equity Bottom-Up

*Weak 1H20 Results: PICC P&amp;C (2328.HK) [PICC P&amp;C] reported 1H20 earnings of CNY 13.2 bn, which was 6% below consensus and down 22% YOY.  Excluding the one-off CNY 4.2 bn tax impact which occurred in 1H19, PICC P&amp;C’s pre-tax earnings actually grew by 4.1%;*Credit Insurance Remains A Trouble Spot: Credit insurance line reported the largest deterioration in underwriting results, posting a CNY 2.9 bn underwriting loss. Despite the decline in new premiums by 59% YOY, PICC P&amp;C reported a 32% YOY increase in earned premium within this unit. This is most likely attributed to policies sold in 2019, in our view. Credit insurance also reported an astronomical combined ratio of 138.6%; and*Auto Enjoying Having No One On The Road: The auto insurance unit reported a CNY 6.6 bn underwriting profit, which increased 194% YOY, as its combined ratio improved 3.3% to 94.8%. This is attributed to the social distancing measures implemented in 1H20, which 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 on COVID-19.

*Weak 1H20 Results: PICC P&amp;C (2328.HK) [PICC P&amp;C] reported 1H20 earnings of CNY 13.2 bn, which was 6% below consensus and down 22% YOY.  Excluding the one-off CNY 4.2 bn tax impact which occurred in 1H19, PICC P&amp;C’s pre-tax earnings actually grew by 4.1%;*Credit Insurance Remains A Trouble Spot: Credit insurance line reported the largest deterioration in underwriting results, posting a CNY 2.9 bn underwriting loss. Despite the decline in new premiums by 59% YOY, PICC P&amp;C reported a 32% YOY increase in earned premium within this unit. This is most likely attributed to policies sold in 2019, in our view. Credit insurance also reported an astronomical combined ratio of 138.6%; and*Auto Enjoying Having No One On The Road: The auto insurance unit reported a CNY 6.6 bn underwriting profit, which increased 194% YOY, as its combined ratio improved 3.3% to 94.8%. This is attributed to the social distancing measures implemented in 1H20, which 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 on COVID-19.   

United Kingdom

Prudential plc is an international company which provides a wide assortment of insurance and investment products and services. Insurance products include life, accident and health, property and casualty insurance, as well as fixed and variable annuities.  Financial and investment services include personal and group pensions, equity plans, mortgages and deposit accounts.

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Prudential PLC (PRU LN)

AIA Group – 3Q Results Will Remain Very Challenging

AIA GROUP: Previewing 3Q Results, We Note VONB Challenges And Other Risks - Hong Kong Not Rebounding, Weak Equity Markets, and Further Investment...

Thomas J. Monaco

Ping An Insurance - Investor Day

*Healthcare Ecosystem Discussed: Ping An Insurance (2318.HK) [Ping An] hosted a healthcare ecosystem investor day on September 22nd in Shenzhen....

Thomas J. Monaco

Asian Insurers – High Court Ruling A Harbinger For Region

*High Court Ruling: The United Kingdom High Court ruled on a test case brought forth by the Financial Conduct Authority (FCA) indicates that the...

Thomas J. Monaco

Ping An Insurance – Life Showing Signs Of Life

*PAL Leads Improvement: Ping An Insurance (2318.HK)[Ping An] reported a 1H20 operating profit of CNY 74.3 bn, increasing just 1% YOY and 5% below...

Thomas J. Monaco

PICC P&C – Still Too Much Credit

*Weak 1H20 Results: PICC P&C (2328.HK) [PICC P&C] reported 1H20 earnings of CNY 13.2 bn, which was 6% below consensus and down 22% YOY....

Thomas J. Monaco

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