Ping An’s Life Insurance NBV Growth Turned Positive in Q4 While P&C Underwriting Margin Missed

Ping An Insurance’s 601318 2022 results were in line with our expectations and we leave our earnings assumptions largely unchanged. Our fair value estimate is HKD 66 per H-share and CNY 60 per A-share. H-shares fell 3.35% on March 16, the first day after the results as the market seems worried about slowing growth in operating profit after tax along with potential contagion risks caused by the unexpected collapse of Silicon Valley Bank. We believe Chinese insurers have negligible exposure to overseas bond investments, as most of their liabilities are domestically driven. The 2022 operating profit after tax, or OPAT, was primarily dragged down by underwriting losses in the credit guarantee insurance line as borrowers’ willingness and ability to repay their debts were hurt by both coronavirus controls and widespread infections. Similarly, losses in the asset management business were caused by bond market turmoil in November and December 2022 after China’s reopening. We believe both negative factors are temporary, and we expect group-level OPAT growth to gradually recover in the second half.

Looking past these challenges, we believe Ping An’s three-year life insurance reforms have started to bear fruit. Despite a 24% year-on-year decline in 2022 new business value, fourth-quarter new business value, or NBV, beat our expectations and turned positive for the first time since first-quarter 2021, with 12% year-on-year growth. Management also guided for positive year-on-year growth in first-quarter NBV after more than 22% growth in average agent income and NBV per agent in 2022.

Group-level OPAT growth in 2022 was slower than expected at 0.3%, down from 6% growth in 2021, but the dividend per share for 2022 still increased by 6% from 2021. This indicates management’s intention to maintain a steady and progressive dividend policy in our view.