Zhongtong Finance APP learned that Zhongyuan International released a research report stating that it maintains the rating of "outperform the market" for the China insurance sector and recommends buying China Pacific Insurance (02601) with a target price of HKD 24.8 and PICC P&C (02328) with a target price of HKD 11.9. The current valuation of the sector is a potential value gap in high dividend strategies. The bank believes that as the reform and transformation of the liability side of insurance companies continues to show results, the mid-term performance of insurance companies in 1H24 is expected to exceed expectations in terms of profits, new business value and underwriting comprehensive cost ratio.

CMB International's main points are as follows:

Listed insurance companies released premium data for June.

The momentum of life insurance premium growth is better than expected at the beginning of the year, and the growth rates of premiums of various companies have slightly differentiated; the growth rate of premium income of property insurance has declined and the industry's payout ratio has risen. The growth rate of auto insurance has slowed down, or may be affected by the decline in new car sales in June. It is expected that the comprehensive cost ratio (CoR) of the top insurance companies in 2Q24 will remain stable under the background of continuous pressure on the expense ratio.

Differentiated growth of life insurance premiums, continuous improvement of FYP structure.

In 2Q24, the total premium income of the three old life insurance companies and six Hong Kong-listed insurance companies increased by +8.0%/+8.5% year-on-year, showing a significant rebound compared to the +1.1%/-0.5% year-on-year growth in 1Q24, but the growth rates of premium income have slightly differentiated. The monthly premium income of Ping An Life Insurance and Health Insurance (L&H) in June increased by 14.7% year-on-year, benefiting from the double-digit growth in premium income of life insurance and health insurance business in May, with a year-on-year increase of +16.2%/+19.7% (May: +10.6%/+11.0%) respectively, which performed the best among the three old companies. The bank believes that this is due to the group's efforts to build a medical and health ecosystem, and the scale effect of empowering the main business is gradually emerging. Xinhua's premium income achieved positive growth for the first time in nearly 10 months in June, with a year-on-year increase of +3.2% to 20.3 billion yuan (May: -6.2%). China Life and CPIC's growth has returned to low single-digits due to the impact of the base period, with a year-on-year increase of +3.2%/+2.3%. The bank expects the impact of the base pressure on sales to continue until the end of July. The premium income of PICC Life Insurance and Yangguang Life Insurance increased rapidly by +30.1% /+36.5% year-on-year in June. With the release of the premium data of the listed insurance companies in 1H24, the bank believes that the resilience of the growth in life insurance premium income in the first half of the year is expected to support double-digit growth in new business value in the 1H24 of insurance companies.

The payout ratio of property insurance is rising, and the growth rate of auto insurance is slowing down due to the decline in new car sales.

The growth rate of auto insurance premium income in the first half of the year was lower than the expected 5% at the beginning of the year. The year-on-year growth of auto insurance premium income of the top insurance companies in 1H24 was nearly 3%, and the year-on-year growth rate of PICC P&C/Ping An P&C/Taikang P&C premium income in 2Q24 was +3.2% /+3.3%/+3.3%, respectively. The bank believes that this is mainly due to the common impact of: 1) the year-on-year decline of 2.3% in June's sales of passenger cars to 2.21 million vehicles (May: +1.2%) and 2) the continuous pressure on the expense ratio after the integration of reports, which has driven down the average insurance premium of auto insurance policies.

Looking ahead to the second quarter, the bank believes that the comprehensive cost ratio (CoR) of the top insurance companies is expected to remain stable under the situation of rising industry payout ratio. According to data from the national emergency management department, the direct economic losses caused by natural disasters in the first half of the year totaled RMB 93.16 billion, which was 3.28 times the same period last year. The top insurance companies are expected to adjust the impact of rising payout ratio on comprehensive cost ratio through further cost reduction, risk pre-warning and precise big data pricing, among other ways.