中国保险业利率分析：风险的定价是多少

1、Global Research20 March 2020EquitiesChina Insurance SectorInsuranceChinaInterest rate analysis: how much risk is priced in?Sector implications amid falling interest ratesMonetary stimulus amid COVID-19 has been a key investor concern on Chinese insurers given lower interest rates, with sector down 3

2、5% YTD, underperforming MSCI China by 18ppt. We lower our PTs by 16-46% mainly to reflect reinvestment risk, market risk for the in-force book and new business disruption. Our asset/liability analysis and valuation reverse engineering suggest our black-sky scenario is largely priced in (adjusted P/E

3、V at 0.9x only), but sentiment could remain challenging near term amid a global sell-off on insurers. Historically, the sector did not perform well when China bond yields fell. We prefer Ping An for its prudent asset/liability management and protection-focused model but downgrade New China Life (NCI

4、) from Buy to Neutral.Factoring slower growth, interest rate risk and market risk into our base caseMajor investor concerns on Chinese insurers are: 1) interest rate risk on reinvestment;2) market and credit risks on existing portfolios; and 3) new business disruption. Our economics team recently do

5、wngraded its China GDP forecasts. Reflecting these, we have cut our long-term investment yield assumption to 3.5% (from 4-4.25%) and applied 20-28% haircut to non-standard assets and corporate bonds. We expect a 1% decline for sector new business value (NBV) in 2020 (13% growth in 2021E). Our adjust

6、ed EVs are 31-68% below EVs on a reported basis. These lead to our 16-46% PT cuts. Across Greater China, we believe insurers in mainland China are more exposed to interest rate risk than Hong Kong insurers, but not as much as their Taiwan peers.Assessing our black-sky scenariowhats priced in?Our bla

7、ck-sky scenario reflects persistent challenges on reinvestment and widespread market risks. We assume: 1) Chinas 10-year bond yield falls a further 150bp; 2) default rates of 25-35% for non-standard investments and corporate bonds; and 3) an 18% risk discount rate (RDR) to reflect mounted perceived

8、risk on insurers. This would result in adjusted EVs being 45-83% below the reported basis. Assuming 3-5x NBV multiples, we would arrive at fair values similar to current valuations for most insurers. Through the lens of fundamentals, current valuations largely reflect our black-sky case, but market

9、panic may cause Chinese insurers share prices to undershoot near term.Ping An (Key Call) remains our top pick; we downgrade NCI to NeutralWe continue to prefer Ping An on stronger asset/liability management and integration of its internet platform and health tech with its core insurance business. We

10、 downgrade NCI to Neutral mainly as its product strategy does not fit well amid falling interest ratesFigure 1: China insurance sector valuationsKelvin Chu, CFAAnalyst HYPERLINK mailto:kelvin.chu kelvin.chu+852-2971 7397Sam TangAnalyst HYPERLINK mailto:sam-za.tang sam-za.tang+852-3712 3578RatingPT (

11、HK$)Price Up/down Mkt cap Trading P/EV (adj)PE (x)P/BV (x)RoE (%)Core RoEV (%)Div yld (%)CompanyNewOldNewOld(HK$)side(US$ m)19E20E19E20E19E20E19E20E19E20E19E20EPing AnBuyBuy96.90115.0070.9537%167,0241.371.177.58.21.851.6124.319.122.221.43.14.0CPICBuyBuy22.2035.0018.1223%21,1730.840.695.87.20.900.871

12、6.012.420.518.27.36.5CTIHBuyBuy14.9026.5011.3431%5,2490.520.443.74.20.530.4815.512.015.714.32.62.2PICC GroupBuyBuy2.504.102.1118%12,0170.620.553.84.20.500.4613.311.013.912.43.53.2NCINeutralBuy21.5040.0020.654%8,2961.190.874.29.20.810.7819.08.215.815.46.63.0China LifeNeutralNeutral12.9021.8012.860%46

13、,8091.271.015.38.70.860.8117.29.715.715.27.24.5Zhong AnSellSell20.4020.4024.10-15%4,559nana-27.9-41.72.212.371.31.3nana0.00.0Note: Above data as of 19 March 2020. CPIC = China Pacific Insurance; CTIH = China Taiping Insurance. NCI = New China Life. Source: Datastream, UBS estimates HYPERLINK /invest

14、mentresearch /investmentresearchThis report has been prepared by UBS Securities Asia Limited. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 23. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may ha

15、ve a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.China Insurance SectorUBS Research THESIS MAP a guide to our thinking and whats where in this report HYPERLINK l _bookmark1 OU

16、R THESIS IN PICTURESMOST FAVOREDLEAST FAVOREDPing AnNew China Life, China LifePIVOTAL QUESTIONSQ: Could falling China interest rates cause negative spreads at Chinese insurers?Unlikely. Reflecting interest rate risk and credit risk, we have applied a 3.5% long-term investment yield assumption to our

17、 EVs (versus 5.0% on a reported basis) and 10-28% haircut to non-standard investment and corporate bonds. While this leads to 30-70% declines in our adjusted EVs, we still expect the sector to generate a normalised RoA of 0.7% for its in-force book even under our 3.5% investment yield assumption. HY

18、PERLINK l _bookmark2 moreQ: Does COVID-19 pose structural challenges to new business growth?On new business, we expect the impact from COVID-19 to be mostly near-term disruption. Pent-up demand and improving insurance awareness should help underpin a strong recovery following the disruption. In our

19、base case, we estimate a 1% NBV decline in 2020 followed by a recovery of 13% in 2021, assuming the coronavirus is largely contained in Q120 and new business starts recover from Q220. HYPERLINK l _bookmark3 moreQ: Will COVID-19 lead to deterioration in sector earnings due to insurance claims? Unlike

20、ly. We expect insurance claims made to Chinese and regional listed life insurers to be manageable. Our scenario analysis suggests a one-off earnings impact of less than 1% for lifeinsurers, as critical illness products (a majority of protection-type products sold) do not cover thecoronavirus. The Ch

21、inese government is committed to bearing most medical expenditure related to COVID-19, which saves the cost for health policies. Reinsurance also helps mitigate claim expenses.Coronavirus are investor concerns well placed 2/3/2020UBS VIEWWe have reduced our long-term investment yield assumption to 3

22、.5% and taken 20-30% haircut on non-standard investment and corporate bonds. We expect a 1% sector NBV decline in 2020 (followed by 13% growth in 2021E). While our asset/liability analysis and valuation reverse engineering suggest the sector has priced in our black-sky scenario (adjusted P/EV now on

23、ly at 0.9x), sentiment is likely to remain challenging in the near term amid a global sell-off on insurers. Historically, the sector did not perform well when China bond yields fell.EVIDENCEOur analysis indicates every 50bp lower long-term investment yield reduces Chinese insurers EVs by 6-9%. This

24、sits at the middle of the Asian insurer range. Our analysis suggests the sector could generate a normalised RoA of 0.7% for its in-force book under our new assumptions.WHATS PRICED IN?Our valuation reverse engineering suggests current valuation has reflected risks that are a lot worse than our base

25、case, probably close to our black-sky scenario. We estimate it would still take the long-term investment yield to fall below 2.0% for sector P/EV to become above 1.3x. This would require Chinas 10-year government bond yield to fall below 1.0%. HYPERLINK l _bookmark4 more3.5%Ping AnNCICPICTaipingChin

26、a LifePICC Life3.0%2.5%2.0%1.5%1.0%0.5%0.0%-0.5%-1.0%Life in-force ROAIn-force ROA in 5 years, if.2019E Life OPAT ROA (5% Investemnt yield current China 10Y bond yield 2% China 10Y bond yield 1%inv yield assumption)new money yield (3.5%)Note: 2019 actual number used for Ping An Source: Company data,

27、 UBS estimatesChina insurance sectorUBS ResearchOUR THESIS IN PICTURES HYPERLINK l _bookmark0 return Figure 2: We expect positive in-force normalised life RoA at most listed Chinese insurers even if interest rates fall a further 100bp; Ping An particularly resilientFigure 3: Similar conclusions at g

28、roup level3.5% In-force ROA3.0%2.5%2.0%1.5%1.0%0.5%0.0%-0.5%-1.0%In-force ROA in 5 years, if.2.0% In-force ROA1.5%1.0%0.5%0.0%-0.5%-1.0%In-force ROA in 5 years, if.2019E Life OPAT Investemnt yield China 10Y bond China 10Y bond2019E Life OPAT Investemnt yield China 10Y bond China 10Y bondROA (5% inv

29、yield assumption) current new money yield (3.5%)yield 2%yield 1%ROA (5% inv yield assumption) current new money yield (3.5%)yield 2%yield 1%Ping An LifeCPIC LifeChina LifeNCITaiping LifePICC Life Note: 2019 actual number used for Ping An.Source: Company data, UBS estimatesFigure 4: Our base case EV

30、assumption now fully reflects the recent sharp decline in the new money yield%6.05.55.04.54.03.53.02.52010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 10yr gov bond yield AAA corp bond yield 5y Bank WMP (1y)Net investment yield PBoC 3yr deposit rateUBSe new money yieldPing An Group CPIC Group

31、 China Life NCI Taiping Group PICC Life Note: 2019 actual number used for Ping An.Source: Company data, UBS estimatesFigure 5: such that our assumptions are about 150bp below the reported basis5.5%5.0%4.5%4.0%3.5%3.0%2.5%2.0%1.5%1.0%Ping AnChina LifeCPICNCITaipingCompany assumptionUBS adjustedActual

32、 gross yield (2016-19E avg.)Source: Wind, UBS estimatesSource: Company data, UBS estimatesFigure 6: Most insurers would remain solvent even if interest rates fall a further 100bp350%300%orymentlat ireRegu requ250%200%150%100%50%0%Ping AnChina LifeCPICNCITaipingPICC LifeReported solvency ratioif 50bp

33、s lower interest rateif 100bps lower interest rateif 150bps lower interest rateif 200bps lower interest rateNote: Life comprehensive solvency ratio as of 2019 for Ping An and Q319 for other companies. Source: Company data, UBS estimatesFigure 7: We now forecast 1% sector NBV decline in 2020; our bla

34、ck-sky scenario suggests almost 20% declineFigure 8: Premium income, even in black-sky scenario, would likely incur healthy growth on renewals250,000200,000150,000100,00050,0000(50,000)(100,000)2015201620172018 2019E 2020E 2021ENBV reduction under black sky case (vs. base case) NBVYoY (base case, RH

35、S) YoY (black sky case, RHS)100%Rmb m80%60%40%20%0%-20%-40%3,0002,5002,0001,5001,0005000Rmb bn2015 2016 2017 2018 2019 2020 2021 2022 2023FYPRenewalLower GWP under Black sky case (vs. base case)Source: Company data, UBS estimatesSource: Company data, UBS estimatesFigure 9: On interest rate risk, mai

36、nland insurers appear to be in a much better shape than their Taiwan peersTaiwan insurersMainland insurersCost of liability3.5-4.0%2.5-3.0%Recurring yield3-3.5%4.5-5.0%Asset yield3.5-4.0%4.5-5.3%New money yield20%3-7%Source: Company data, UBS estimatesFigure 10: Valuation we estimate it would take l

37、ong-term investment yield to fall below 2.0% for sector P/EV to be above 1.3x, suggesting market has priced in at least 150bp further new money yield compression vs current level1.401.201.000.800.600.400.200.00P/EVCurrent UBS assumptionreportedRDR haircut on inv yield inv yield inv yield inv yield i

38、nv yield inv yield basis15%asset4.5%4.0%3.5%3.0%2.5%2.0%Note: 10-28% haircut on non-standard assets and corporate bonds. Source: UBS estimatesChina insurance sectorUBS ResearchSUMMARY OF CHANGES HYPERLINK l _bookmark0 return Figure 11: Summary of rating and price target changes; we cut sector 2020E

39、NBV to reflect COVID-19 impactRatingPT (HK$)Price Up/downMkt cap2019E NBV growth2020E NBV growth2021E NBV growthCompanyNewOldNewOld(HK$)side(US$ m)NewOldNewOldNewOldPing AnBuyBuy96.90115.0070.9537%167,0245%5%-1%5%15%12%CPICBuyBuy22.2035.0018.1223%21,173-10%-10%-12%5%16%13%TaipingBuyBuy14.9026.5011.3

40、431%5,269-4%-4%-8%8%14%12%PICC GroupBuyBuy2.504.102.1118%12,01725%40%5%25%18%15%PICC P&CBuyBuy7.5011.806.1821%17,702NaNaNaNaNaNaChina ReBuyBuy1.081.480.8823%4,814NaNaNaNaNaNaChina LifeNeutralNeutral12.9021.8012.860%46,80918%18%8%11%13%11%NCINeutralBuy21.5040.0020.654%8,296-8%-8%6%8%9%8%Zhong AnSellS

41、ell20.4020.4024.10-15%4,559nanananananaNote: Above data as at 19 March 2020. Source: Company data, UBS estimates; Ping An is using 2019 actual numberMajor investor concerns on Chinese insurers are: 1) interest rate risk on reinvestment; 2) market and credit risks on existing portfolios; and 3) new b

42、usiness disruption. Our economics team recently downgraded its China GDP forecasts. Reflecting these, we have reduced our long-term investment yield assumption to 3.5% and taken 20-28% haircut to non-standard assets and corporate bonds. We expect a 1% sector NBV decline in 2020 (13% growth in 2021E)

43、. Our adjusted EVs are 31-68% below EVs on a reported basis. These lead to our 16-46% PT cuts.Figure 12: EV and PT revisions to reflect interest rate and market/credit risksRmb mPing AnChina LifeCPICNCITaiping2020E Life EV on company assumptions905,3151,034,707350,645224,361185,617UBS long term inv

44、yield & RDR assumptions-284,973-400,801-137,537-67,030-61,127haircut on asset-144,735-297,608-94,830-85,094-48,589 ref % of total inv asset5%9%7%11%7%2020E adjusted Life EV475,606336,297118,27972,23775,901.Life EV adjustment-47%-67%-66%-68%-59%Non-Life EV487,1460102,775051,307Group EV (adjusted)962,

45、753336,297221,05472,237127,208.Group EV adjustment-31%-67%-51%-68%-46%Old price target (HK$/shr)115.021.835.040.026.5EV adjustment-26%-57%-41%-61%-37%bring forward 1 year22%16%20%16%14%NBV multiple change & others-12.2%0.2%-15.6%-1.0%-20.5%New price target (HK$/shr)96.912.922.221.514.9Last closing p

46、rice (HK$/shr)70.9512.8618.1220.6511.34PT vs. current price37%0%23%4%31%AssumptionsAsset haircut for NSA25%28%28%26%27%Haircut for other non-govt bond FI20%25%25%20%25%LT inv yield3.75%3.50%3.50%3.50%3.50%RDR15%15%15%15%15%NBV multiple10 x5x5x3x3xSource: Company data, UBS estimatesWe cut sector 2020

47、-21E EPS mainly to reflect reserve charges on falling interest rates, which we will discuss in our first pivotal question. The difference in YoY growth is mainly due to a high base impact on investment income in 2019 for some insurers.Figure 13: We cut sector 2020-21E EPS mainly to reflect reserve c

48、harges on falling interest rates(Rmb)2019E EPSNewOld2020E EPSNewOld2021E EPSNewOldPing An9.529.528.719.5010.3011.14CPIC3.133.142.543.313.003.85Taiping (HK$)3.072.762.683.063.113.45PICC Group0.550.540.500.530.550.57PICC P&C1.271.271.191.301.311.35China Life2.402.391.491.811.711.99NCI4.874.882.244.722

49、.905.81Note: For Ping An, we use 2019 actual number. Source: Company data, UBS estimatesChina insurance sectorUBS ResearchPIVOTAL QUESTIONS HYPERLINK l _bookmark0 return Q: Could falling China interest rates cause negative spreads at Chinese insurers?UBS VIEWUnlikely. While mainland Chinese insurers

50、 are sensitive to interest rates, we believe they are not as vulnerable as some of their regional peers (eg, Taiwan life insurers). Reflecting interest rate risk and credit risk, we have applied a 3.5% long-term investment yield assumption to our EVs (versus 5.0% on a reported basis) and 10-28% hair

51、cut to non-standard investment and corporate bonds. While this leads to 30-50% declines in our adjusted EVs, we still expect the sector to generate a normalised RoA of 0.7% for its in-force book even under our 3.5% investment yield assumption.EVIDENCEOur analysis shows every 50bp lower long-term inv

52、estment yield reduces Chinese insurers EVs by 6-9%. This sits at the middle of the Asian insurer range. Chinese insurers interest rate sensitivity mainly comes from asset/liability mismatch. On one hand, high guarantee rates are common for saving-type products. On the other hand, most financial and

53、corporate bonds do not offer long-enough duration to match with liability. That being said, we believe mainland Chinese insurers are better positioned than peers such as Taiwan insurers on guarantee rates, product mix, and growth prospects.WHATS PRICED IN?Our valuation reverse engineering suggests c

54、urrent valuation has reflected risks that are a lot worse than our base case, probably close to our black-sky scenario. For example, even if we applied substantially more conservative assumptions for long-term investment yield, investment asset haircut and risk discount rate versus our already conse

55、rvative base case, and only 3-5x NBV multiples, fair values under our black-sky scenario would be similar to current share prices. That being said, we believe market panic and interest rate sensitivity of Chinese insurers mean share prices may undershoot near term.Figure 14: We expect positive in-fo

56、rce normalised life RoA at most listed Chinese insurers even if interest rates fall a further 100bp; Ping An particularly resilientFigure 15: Similar conclusions at group level3.5% In-force ROA (%)3.0%2.5%2.0%1.5%1.0%0.5%0.0%-0.5%-1.0%In-force ROA in 5 years, if.2.0%In-force ROA (%)1.5%1.0%0.5%0.0%-

57、0.5%-1.0%In-force ROA in 5 years, if.2019E Life OPAT Investemnt yield China 10Y bond China 10Y bond2019E Life OPATInvestemnt yieldChina 10Y bondChina 10Y bondROA (5% inv yield assumption) current new money yield (3.5%)yield 2%yield 1%ROA (5% inv yield assumption) current new money yield (3.5%)yield

58、2%yield 1%Ping An Life CPIC Life China Life NCI Taiping Life PICC LifeNote: 2019 actual number used for Ping An. Source: Company data, UBS estimatesPing An Group CPIC Group China Life NCI Taiping Group PICC LifeNote: 2019 actual number used for Ping An. Source: Company data, UBS estimatesAnalysis of

59、 normalised RoA for in-force: In our analysis of normalised RoA for in-force policies across various interest rate scenarios, we find that even if Chinas government bond yield further falls from the current level to 2.0%, most listed insurers would experience more pressure on profit but would remain

60、 modestly profitable, ie, negative spreads are largely out of the question as long as Chinas 10-year bond yield stays above 2%. We also highlight that Ping Ans relatively resilience on profitability would be even more apparent if interest rates further decline. For instance, in a more extreme case o