China Taiping's Life & P&C Split Sparks 'Third Brother' Battle
In the first half of 2024, driven by investment performance, China Pacific Insurance (601601.SH; 2601.HK) achieved double-digit growth in both revenue and net profit, with the net profit increase ranking first in the industry.
However, it is also the only insurance company listed on the A-share market without an interim dividend plan.
The performance is not without its bright spots, but there are also hidden concerns.
The property and life insurance businesses are diverging, with the property insurance performing brilliantly, while the life insurance is a mixed bag.
The long-term action reform is not yet halfway, and there has been a change in core leadership.
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The largest contributor to net profit, Taiping Life Insurance, is struggling with premium growth, and the new business of bank insurance has decreased.
The rising stars are catching up fiercely, and if this continues, the "third brother" in life insurance may have to change.
In the first half of 2024, China Pacific Insurance's revenue was 194.634 billion yuan, a 10.88% increase compared to the same period in 2023; the net profit attributable to the parent company was 25.132 billion yuan, a year-on-year increase of 37.09%.
The significant improvement in investment income year-on-year is the core element driving the growth of net profit.
In the first half of 2024, the company's financial asset credit impairment losses decreased by 104.4%.
At the same time, the company's investment income increased by 57.52% year-on-year; the fair value change income increased by 292.74% to 20.945 billion yuan.
It is worth noting that during the period, the company's underwriting financial losses increased from 29.983 billion yuan to 44.03 billion yuan, a year-on-year increase of 46.85%, which has dragged down the growth of net profit.
The increase in underwriting financial losses, as the name suggests, refers to the financial losses faced by insurance companies due to their insurance liabilities.
Changes in this element are affected not only by accounting standards but also by financial market fluctuations, changes in insurance contract terms, and investment strategies and asset management, all of which will affect the financial performance of the underwriting end.
Overall, China Pacific Insurance's investment performance is commendable.
As of the end of June 2024, the group's managed assets reached 3,263.01 billion yuan, a 11.7% increase from the end of 2023.
The group's investment assets were 2,456.027 billion yuan, a 9.2% increase from the end of the previous year.
Among them, bond investments were 1,365.113 billion yuan, accounting for 55.6%.
In the first half of 2024, affected by dividends and interest income, the company achieved a net investment income of 39.089 billion yuan, a year-on-year increase of 1.7%.
Benefiting from the significant increase in fair value change gains, the total investment income increased by 46.5% year-on-year to 56.037 billion yuan.
During the period, the group's comprehensive investment yield on investment assets was 3.0%, an increase of 0.9 percentage points year-on-year.
It is below the average investment yield of 3.3% in the past three years.
Among them, the company's total investment yield was 2.7%, an increase of 0.7 percentage points year-on-year; the net investment yield was 1.8%, a decrease of 0.2 percentage points year-on-year, at 1.8%.
It is worth mentioning that although the investment performance is good and the net profit growth rate ranks first in the industry, China Pacific Insurance is the only A-share listed insurance company without an interim dividend plan.
As of September 13, China Pacific Insurance's A-share stock price closed at 29.65 yuan, a 29.36% increase from the beginning of the year, leading the increase among the five major A-share listed insurance companies.
Looking back at the main insurance business, in the first half of 2024, the national insurance industry achieved a premium income of 3.55 trillion yuan, a year-on-year increase of 4.9%.
Among them, life insurance companies achieved a premium income of 2.63 trillion yuan, a year-on-year increase of 5.1%; property insurance companies achieved a premium income of 0.92 trillion yuan, a year-on-year increase of 4.5%.
However, whether it is life insurance or property insurance, China Pacific Insurance is ranked third among domestic insurance companies.
Focusing on the internal structure of China Pacific Insurance, the efficiency of property and life insurance business is still unbalanced.
In the first half of 2024, the company achieved an insurance service income of 137.019 billion yuan, a year-on-year increase of 2.2%.
Among them, Taiping Life Insurance's insurance service income was 41.835 billion yuan, a year-on-year decrease of 2.40%; the contribution to the net profit attributable to the parent company was 20.055 billion yuan, a year-on-year increase of 43.02%.
In contrast, Taiping Property Insurance's insurance service income was 93.076 billion yuan, a year-on-year increase of 4.2%; however, the contribution to the net profit attributable to the parent company was only 4.792 billion yuan.
This may be related to the industry characteristics, as property insurance is more policy-oriented and its ability to create profits is far less than that of life insurance.
As a core subsidiary of China Pacific Insurance, it is often referred to as "the old three of property insurance" with PICC Property Insurance and Ping An Property Insurance, which shows its position in the industry.
However, in terms of insurance business income, net profit scale, or market share, Taiping Property Insurance is inferior to the first two.
In the first half of 2024, the three companies achieved a net profit of 32.203 billion yuan, a year-on-year decrease of 1.09%.
Among them, the net profits of PICC Property Insurance, Ping An Property Insurance, and Taiping Property Insurance were 17.457 billion yuan, 9.954 billion yuan, and 4.792 billion yuan, respectively.
Among them, the net profit of Taiping Property Insurance increased by 18.58% year-on-year, leading the growth rate.
During the reporting period, Taiping Property Insurance benefited from a significant increase of 12.61% in total investment income, and the comprehensive cost rate of underwriting decreased, which led to a significant increase of 47.55% in underwriting profit year-on-year, and the net profit achieved double-digit growth.
In fact, in the first half of 2024, the quality of Taiping Property Insurance business has been greatly improved.
The comprehensive cost rate of underwriting was 97.1%, a decrease of 0.8 percentage points from the same period in 2023, lower than the average comprehensive cost rate of underwriting of 97.4% in the past three years.
Specifically, the comprehensive cost rate of underwriting was 27.5%, the same as the previous year; during the period, the comprehensive cost rate of underwriting compensation was 69.6%, a decrease of 0.8 percentage points year-on-year.
Slightly lower than the average comprehensive cost rate of underwriting compensation of 69.8% in the past three years.
At the same time, Taiping Property Insurance's original insurance premium income was 111.803 billion yuan, a year-on-year increase of 7.8%.
Among them, non-motor insurance premiums increased by double digits, accounting for more than half to 59.636 billion yuan.
In contrast, the growth rate of motor insurance premiums slowed down to only 2.76%, amounting to 52.167 billion yuan.
It is worth noting that although Taiping Property Insurance has achieved many results in "reducing costs," there are still some that have slipped through the net.
Health insurance is the insurance with the highest original premium income ratio among the non-motor insurances of Taiping Property Insurance.
However, despite a 20% year-on-year increase in its original premium income in the first half of 2024, due to the high comprehensive cost rate, it exceeded the 100% break-even line, and health insurance is still in a state of underwriting loss, which is also the only loss-making insurance.
In addition, the comprehensive cost rate of liability insurance is 99.4%, close to the break-even line, and is the same as the mid-term of 2023, with no significant improvement.
Solvency is considered the "lifeline" of insurance companies and is regarded as a barometer of the company's operating ability.
In the first half of the year, Taiping Property Insurance's core solvency adequacy ratio was 173%, an increase of 9 percentage points from the end of 2023.
The comprehensive solvency adequacy ratio was 220%, an increase of 6 percentage points from the end of 2023.
Compared with the industry, it is slightly lower than the industry level.
Regulatory website disclosure, at the end of the second quarter of 2024, the average core solvency adequacy ratio of property insurance companies was 210.2%, and the average comprehensive solvency adequacy ratio was 237.9%.
It can be seen that even large property insurance companies like Taiping Property Insurance are not optimistic about solvency.
From the perspective of net profit contribution, the growth of China Life Insurance still depends on life insurance.
Affected by the fluctuation of the capital market and the optimization of equity investment strategy, Taiping Life Insurance's total investment income was 47.71 billion yuan, a significant year-on-year increase of 57.81%, driving the investment performance to grow by 4.061 billion yuan.
It is worth noting that during the period, the financial underwriting loss was 41.311 billion yuan, a year-on-year increase of 48.09%.
However, the growth momentum of the underwriting end is slightly insufficient.
The growth rate of new business value is not as good as that of China Life Insurance and New China Insurance; the insurance business income is about to be caught up by insurance companies such as Taikang Life Insurance, and the "battle for the top three" is not easy.
In the first half of 2024, the new business value of the life insurance industry generally increased.
Taiping Life Insurance's new business value was 9.037 billion yuan, a year-on-year increase of 22.77%, and a year-on-year increase of 29.5% under comparable conditions.
However, in the competition with the industry, its new business value growth rate is far behind the growth rate of China Life Insurance's new business value, which increased by 90% year-on-year, and New China Insurance's growth rate of 50%.
In the first half of 2024, Taiping Life Insurance achieved a scale premium of 170.105 billion yuan, a year-on-year increase of only 0.31%; however, the insurance business income did not increase but decreased, with a year-on-year decrease of 1.23%, amounting to 153.159 billion yuan, and the growth momentum is insufficient.
In fact, in recent years, the growth rate of Taiping Life Insurance's insurance business income has shown fatigue compared to competitors.
China Life Insurance and Ping An Life Insurance have taken a leading position in the top two seats of life insurance companies.
However, the position of Taiping Life Insurance as the third brother in the industry is quite challenged.
It is reported that Taikang Life Insurance, which is relatively behind in the ranking, achieved an insurance business income of 139.092 billion yuan in the first half of 2024, a year-on-year increase of 18.42%, far higher than the growth rate of Taiping Life Insurance.
As early as 2021, Taikang Life Insurance's net profit had surpassed that of Taiping Life Insurance.
In addition, in 2023, Rui Ren Life Insurance's total premium also surpassed Taiping Life Insurance to rank third in the market.
Looking at the channels, the mainstream agent channel of Taiping Life Insurance accounts for 80% of the total scale premium, amounting to 136.211 billion yuan.
It created a new business value of 7.219 billion yuan, a significant year-on-year increase of 20%.
During the reporting period, the average number of insurance salespeople of Taiping Life Insurance was 183,000, a year-on-year decrease of 16.44%.
As of the end of the first half of 2024, the number of insurance salespeople of Taiping Life Insurance was 183,000, a decrease of 33,000 compared to the same period in 2023, a year-on-year decrease of 15.28%.
Compared with the end of 2023, it has decreased by 16.44% and has not yet stabilized.
In addition, the scale premiums of the bank insurance and group government channels decreased by 1.01% and 14.43% year-on-year, respectively.
The reason is that the growth of new insurance is under pressure.
Especially affected by the market environment and policy adjustments, the new insurance business of the bank insurance channel has declined by 30%, which shows that there are challenges in improving the value of new business in this channel.
Looking at the types of insurance, traditional insurance is the cornerstone, with a year-on-year increase of 6.04% to 106.437 billion yuan.
Among them, the premium of long-term health insurance decreased by 3.34%.
The universal insurance has the fastest growth rate, which is 17.47%, but the premium proportion is relatively small, only 16.399 billion yuan.Additionally, the premiums for dividend insurance, tax-deferred annuities, and short-term accident and health insurance have seen a comprehensive decline, with the respective decline rates being 12.24%, 24.32%, and 22.45%.
Notably, Zhang Yuanhan, the Chief Actuary and Financial Officer of China Pacific Insurance (Group) Co., Ltd., indicated at the performance meeting that due to the reduction in the predetermined interest rate and changes in the macroeconomic environment, customer demand for products is also shifting, with the current direction being a shift towards dividend insurance.
In the long term, the proportion of dividend-type products is expected to exceed 50%.
Since the beginning of the year, there have been multiple adjustments in the management of China Pacific Insurance.
Following the new and old transition in the core management team of China Pacific Insurance Group in January 2024, the original president, Fu Fan, succeeded Kong Qingwei, who retired, to become the chairman of the board, and Zhao Yonggang succeeded as president.
Subsequently, the management of the core subsidiary Taikang Life Insurance, which contributes the most to the group's performance, underwent changes.
In July 2023, the company officially launched the second phase of the "Long Voyage Transformation" project.
Less than a year later, the general manager who led the "Long Voyage Transformation 1.0" for three years, Cai Qiang, stepped down, and at that time, the chairman Pan Yanhong took over as the interim head.
In July 2024, the regulatory authority approved Li Jinsong's qualification as the general manager of Taikang Life Insurance.
However, in August of this year, Pan Yanhong retired from the position of chairman of Taikang Life Insurance due to reaching the retirement age, and Zhao Yonggang, the president of China Pacific Insurance, will take on multiple responsibilities and concurrently serve as the chairman of Taikang Life Insurance.
Under the pressure of the industry, how the new leadership of China Pacific Insurance will respond to the current market environment challenges and promote the high-quality transformation of the second phase of the Long Voyage project is highly anticipated.