Soochow Securities released a research report stating that it maintains a 'buy' rating on PICC P&C (02328), expecting a net income of 29.6 billion, 32.3 billion, and 34.5 billion yuan for 2024-2026, as a cost-effective dividend symbol for both offense and defense. Investment income performance continues to improve season by season, and the underwriting profit gap continues to narrow. The company announced a performance forecast for 9M24, expecting a year-on-year increase in net income of about 20% to 40%, based on the central net income growth rate of 30%, corresponding to a single quarter net income of 7.745 billion yuan in 3Q24 (net income in 3Q23: 0.153 billion yuan, a significant year-on-year improvement). The company's announcement is due to the resurgence of the capital market, driving profit improvement with improved total investment income year-on-year. Performance exceeded expectations.

The main viewpoints of Soochow Securities are as follows:

According to a central net income growth rate of 30%, the corresponding 9M24 cumulative annualized ROE reached 10.4% (9M23: 8.7%).

According to the new insurance ROE framework built by the bank (average underwriting leverage * underwriting profit rate + total investment income rate * average investment leverage + other income) * (1 - actual tax rate), the company's ROE for 9M24 is 10.4%, a year-on-year increase of 1.6 percentage points. Looking at the attribution, the bank expects: the average underwriting leverage to slightly decrease to 1.5; under the new framework, the underwriting profit rate increased slightly from 2.1% in 9M23 to 2.3% in 9M24; the total investment income rate in 9M24 significantly improved from 2.7% in 9M23 to 3.4% in 9M24, driving a significant year-on-year improvement of 32% in total investment income for 9M24, which is the core reason for the improvement in net income.

The CSI 300 Index rose by 16.07% in 3Q24 (accumulating a 17.1% increase in the first three quarters of 2024), while in the same period 3Q23 fell by 3.98% (accumulating a decline of 4.7% in the first three quarters of 2023). The profit contribution proportions of underwriting and investment for 9M24 are 28.8% and 73.2% respectively. The company emphasizes promoting high-quality development, solidly advancing the 'Eight Strategic Services', and actively implementing a new business model of 'insurance + risk reduction services + technology'. In the first three quarters of 2024, the year-on-year growth in total investment income was relatively large under the recovery of the capital market. The bank expects the company's 9M24 cumulative COR to be 97.7% (9M23: 97.9%), with the total underwriting profit steadily increasing.

Continued improvement in auto insurance underwriting profit:

The bank expects the 9M24 cumulative auto insurance COR to be 96.6%. The cumulative year-on-year growth rates of auto insurance and non-auto premiums for 9M24 at PICC P&C are 3.2% and 5.9% respectively, with non-auto business proportion increasing by 0.6 percentage points to 50.2% year-on-year. In September, the year-on-year growth rate of auto insurance premiums at PICC P&C rose by 5.3% monthly, with premium growth picking up, benefiting from: 1) Since June 2023, the range of commercial auto insurance self-pricing factors has expanded from [0.65-1.35] to [0.5-1.5], leading to a gradual improvement in data comparability after June 2024; 2) With the continuous increase in the penetration rate of new energy vehicles, the average premium advantage of new energy auto insurance is gradually being realized. The recent 2024 version of the new 'National Ten Measures' clearly emphasizes 'focusing on new energy commercial auto insurance and deepening comprehensive auto insurance reform', focusing on the sustainability of subsequent improvements in average premiums and whether the claims ratio of new energy auto insurance can quickly approach the average level of traditional gasoline vehicles. The bank is bullish on the company's auto insurance business with a COR stable at below 97%.

Non-auto insurance performance is still affected by major disasters:

The bank expects that the cumulative non-auto insurance COR for 9M24 will be 99.4%. According to data from the Emergency Management Department, since 2024, natural disasters in China have been mainly floods, geological disasters, droughts, hailstorms, cold waves, and snow disasters, with earthquakes, typhoons, sandstorms, and forest grassland fires also occurring to varying degrees. Affected by macroeconomic fluctuations, part of the customer demand for some types of non-auto insurance business has been somewhat deferred. In the cumulative non-auto insurance premium growth rate for 9M24, credit insurance business (YoY -5.9%), agricultural insurance (YoY 1.0%), and commercial property insurance (YoY 3.3%) have growth rates lower than the average level. Focus on the improvement of demand for some corporate businesses after the subsequent comprehensive stimulus policies take effect.

Risk Warning: High incidence of natural disasters, intensifying competition in the auto insurance market.