德意志银行中国保险业ChinaInsuranceSectorAnewperspective20170

DeutscheBankMarketsResearchIndustryChinaInsuranceSectorDate13July2017AsiaHongKongBanking/FinanceInsuranceF.I.T.T.forinvestorsAnewperspectiveRewardingquality–identifyingplayerswiththestrongestprotectionfocusIntroducedlastyear,theC-ROSSreportsdon’tjustprovideregulatorswithriskcontrolsoverthelifesector,theyalsoenableanalyststoquantify,forthefirsttime,theunderlyingmixofbusinesswrittenbytheindustry.Withthisdata,wecanbetterassesswhohasthebeststrategicfocusonhigher-valueprotectionpoliciesandwhohasthebestriskmanagementcapabilities;wehaverevisedourtargetvaluationstorankthestocksaccordingly.ThemostsignificantchangeisforNCI,witha64%highervaluation–weupgradethestocktoBuyandoneofourTopPicks.PingAnleadswiththeresultsofouranalysisandisaTopPickaftera35%liftinvaluation.EstherChweiResearchAnalyst(+852)[e-mail]yst(+852)[e-mail]________________________________________________________________________________________________________________DeutscheBankAG/HongKongDeutscheBankdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Thus,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.DISCLOSURESANDANALYSTCERTIFICATIONSARELOCATEDINAPPENDIX1.MCI(P)083/04/2017.Distributedon:12/07/201721:16:34GMT0bed7b6cf11cDeutscheBankMarketsResearchAsiaHongKongBanking/FinanceInsuranceIndustryChinaInsuranceSectorDate13July2017FITTResearchAnewperspectiveRewardingquality–identifyingplayerswiththestrongestprotectionfocus________________________________________________________________________________________________________________DeutscheBankAG/HongKongDeutscheBankdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Thus,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.DISCLOSURESANDANALYSTCERTIFICATIONSARELOCATEDINAPPENDIX1.MCI(P)083/04/2017.EstherChweiResearchAnalyst(+852)[e-mail]yst(+852)[e-mail]28.70to36.90(HKD)-1336.HK41.40to67.70(HKD)HoldtoBuy1339.HK3.70to4.20(HKD)-2318.HK54.90to74.00(HKD)-2601.HK43.60to44.00(HKD)-2628.HK31.00to32.30(HKD)-601318.SS52.10to67.30(CNY)-601336.SS39.30to61.60(CNY)-601601.SS41.30to40.00(CNY)-601628.SS-BuytoHoldSource:DeutscheBankToppicksPingAn(2318.HK),HKD54.85BuyNCI(1336.HK),HKD41.20BuySource:DeutscheBankCompaniesFeaturedChinaLife(2628.HK),HKD24.70BuyPingAn(2318.HK),HKD54.85BuyCPIC(2601.HK),HKD32.40BuyNCI(1336.HK),HKD41.20BuyCTIH(0966.HK),HKD21.10BuyPICCGroup(1339.HK),HKD3.60HoldAIA(1299.HK),HKD58.40BuyChinaLife(601628.SS),CNY27.96HoldPingAn(601318.SS),CNY50.60BuyCPIC(601601.SS),CNY34.51BuyNCI(601336.SS),CNY54.30HoldSource:DeutscheBankThisreportincludeschangestotargetpricesand/orratingsforseveralcompaniesunderourcoverage.PleaseseetheKeyChangestableabove,andFigures7-8,fordetails.Introducedlastyear,theC-ROSSreportsdon’tjustprovideregulatorswithriskcontrolsoverthelifesector,theyalsoenableanalyststoquantify,forthefirsttime,theunderlyingmixofbusinesswrittenbytheindustry.Withthisdata,wecanbetterassesswhohasthebeststrategicfocusonhigher-valueprotectionpoliciesandwhohasthebestriskmanagementcapabilities;wehaverevisedourtargetvaluationstorankthestocksaccordingly.ThemostsignificantchangeisforNCI,witha64%highervaluation–weupgradethestocktoBuyandoneofourTopPicks.PingAnleadswiththeresultsofouranalysisandisaTopPickaftera35%liftinvaluation.Insurancerisk–anindicatorofprotectionfocusWehaveanalyzedtheC-ROSSreportsoflistedChineselifeinsurersandAIAChina,whichquantifytheirriskexposures(insurancerisk,marketriskandcreditrisk)andinternalcontrol.C-ROSSdefinesinsuranceriskastheestimatedcapitalshortfallduetoanincreaseinclaims,expensesandsurrendersinastressedenvironment.Insurerswithastrongerfocusonprotectionshouldseehigherinsurancerisk.Basedonouranalysis,mostlistedlifeinsurers(exceptChinaLife)haveseenasteadyincreaseininsurancerisksince4Q15.PingAnhasshownthemostconsistentimprovementinprotectionmixsince4Q15,whileChinaLifehasseenadeterioration.Asof1Q17,AIAChinahasthehighestproportionofinsuranceriskat46%,followedbyPingAnat29%,NCIat28%,ChTaipingat22%,CPICat19%,ChinaLifeat18%andPICCLifeatamere9%.InvestmentriskandriskmanagementcapabilitiesWeassessinsurers’investmentrisksbycomparingthesizeoftheirmarketandcreditrisktotheircoretier-1capitalunderC-ROSS.Underthismeasure,PICCLife’sinvestmentriskwasthehighestat88%,followedbyTaipingat57%,PingAnat51%,CPICat48%,NCIat41%,ChinaLifeat40%andAIAat18%.Whatsurpriseduswasthat,despiteaperceivedhighassetrisk(thehighestexposuretonon-standardinvestments),NCI’sinvestmentriskwasamongthelowestoflistedChineselifeinsurers,withaconsistentdeclinesince4Q15.Assuch,webelievetheconcernsonNCI’sbalancesheetmaybeoverdone.TheCIRCalsoassessesinsurers’riskmanagementcapabilitiesbasedonaseriesofcriteria(SA