China Insurance Sector Report NOVEMBER 2015

Transcription

1 China Insurance Sector Report NOVEMBER 2015 Platinum Broking IMPORTANT DISCLOSURES ARE PROVIDED ON THE LAST PAGE OF THIS REPORT

2 SECTION 1 Insurance supervision China & Europe follow similar policy directives, whilst the US uses risk based capital ratios Chinese Insurers are over capitalized based on Solvency Solvency (ii) The regulatory commissions of banks, Securities and insurance may integrate.6 SECTION 2 Macro Outlook for Insurance industry More and more Chinese will buy insurance policies High bank deposit ratio suggests strong purchase power for insurance policies Aging population brings development opportunities for commercial pensions....9 SECTION 3 Sector Overview Embedded value is insurer s main valuation benchmark and closely relates to profit growth Insurers experienced stable premium growth and is expected to continue Insurers seek higher yielding investments...11 SECTION 4 Financial Analysis Integrated business model gives Ping An a tremendous capital advantage Taiping has the lowest Assets-liability ratio China Life has the highest level of surplus capital SECTION 5 Company Outlook Taiping has the highest embedded value growth in FY Investment yield Comparison Cost control - Comparison..18 SECTION 6 Valuation Ping An is our preferred pick (TP: HK$65.36, + premium of 48.2%, BUY) Taiping will continue to excel (TP: HK$34.7, + premium of 44.6%, BUY).. 20 Platinum Broking 2

3 SECTION 1 Insurance supervision 1.1 China & Europe follow similar policy directives, whilst the US uses risk based capital ratios. Solvency is the core risk supervision metric in the insurance sector. Solvency (i), the first generation metric, is scale oriented. The notable deficiency is that insurers can effectively improve their solvency ratios by expanding assets scale without considering the associated risks. Solvency (ii) is updated and risk orientated. With the exception of the United States, which adopts risk based capital ratios, the rest of the world is migrating their current solvency (i) to Solvency (ii). US solvency ratios are calculated at the state level and use harsher risk based ratios which are more severe, with China and Europe currently operating under less punitive solvency (i) metrics. Solvency (ii) moves China and Europe closer to the US Standard. China established its version of the Europe Solvency (ii), known as China Risk Oriented Solvency System ( C-ROSS ). This will be implemented in The table below is based on Solvency (ii). Exhibit 1: Percentage of companies with solvency ratio below 100% Line of Business Germany France Italy UK China Life 25% 8% 0% 21% 3% Property & Casualty 0% 15% 50% 8% 5% Source: Platinum research, Bain and Company Note: The data are as of 1H15. Platinum Broking 3

4 Exhibit 2: China insurers profitability vs. capitalization Exhibit 3: European insurers profitability vs. capitalization Source: Bain and Company 1.2 Chinese Insurers are over capitalized based on Solvency (ii) = China Risk Oriented Solvency System ( C-ROSS ), which will be implemented in China insurance sector average solvency ratio is 264% vs minimum requirement of 100%. Maximum allowed property investment proportion for insurers capital: European (10%) vs. China (30%). The Chinese industry average solvency ratio is 264%, much higher than the supervision line of 100%, indicating less efficient use of capital. By contrast, European insurers have more solvency issues and their average solvency ratio is less than 200%. We think that the European insurance regulatory regime is more advanced and represents the development direction of the Chinese insurance regulatory regime. If we assume China would apply Europeans solvency ratio of 200% in ten years, Chinese insurers average solvency ratio should decrease 50ppts, releasing about RMB6,544.5b of capital which could be used for alternative investments. If we assume a yield rate of 6.0%, then the increased capital would translate to profits of RMB392.7b in 10 years. The overcapitalized Chinese Insurers are chasing overseas real estate and other assets to burn off some of their excess capital. We don t view this as negative, rather we see this as a prudent use and allocation of capital. China Insurance Regulatory Commission ( CIRC ) has loosened the constraints on the proportion of property investment from 20% to 30% of the total assets. That means there would be RMB1.1t available to invest in the property sector.(exhibit 4) The US does not have specific constraints on the investment portfolio, while Europe has stricter restrictions. Platinum Broking 4

5 Exhibit 4: Supervision policies comparison China European America Solvency requirement Investment portfolio Solvency requirement Investment portfolio Risk-based capital ratio Core solvency ratio should not be less than 50%. (Core solvency ratio = Core capital of insurance group/ Minimum capital) Comprehensive solvency ratio should not be less than 100%. (Comprehensive solvency ratio = Real capital of insurance group/ Minimum capital) The balance of equity investment assets should not be more than 30% of total assets in preceeding year. The balance of real estate investment assets should not be more than 30% of total assets in preceeing year. The balance of alternative investment assets should not be more than 25% of total assets in preceeding year. Oversea investment should not be more than 15% of total assets in preceeding year. Slovency ratio>200%, no regulatory action 150%< slovency ratio <200%, company action level 100%< slovency ratio <150%, regulatory action level 70%< slovency ratio<100%, authorized control level slovency ratio < 70%, mandatory control level Assurance undertaking to invest no more than 10% of its total gross provision in any land. Assurance undertaking to invest no more than 5% of its total gross provision in shares and other negotiable securities treated as share, bonds, debt securities. Assurance undertaking to invest no more than 5% of its total gross provision in unsecured loans. Assurance undertaking to invest no more than 3% of its total gross provision in cash in hand. Assurance undertaking to invest no more than 10% of its total gross provision in shares and debt securities which are not dealt on a regulated market. RBC ratio = adjusted capital/θ*total amount of risk capital When the total assets can not reach 200% of authorised control level, insurance should propose improving project by itself. When the total assets can not reach 150% of authorised control level, regulator must investigate. When the total assets can not reach 100% of authorised control level, regulator could start the liquidation. When the total assets can not reach 100% of authorised control level, regulator must take over the company. Source: China Insurance Regulatory Commission ( CIRC ), European Union, USA solvency research report 1.3 Solvency (ii) The upcoming Chinese Solvency (ii) would benefit larger-scale insurers and help to unfreeze up to RMB550b of capital. In 2012, CIRC announced that China would establish their own Solvency (ii) system, known as China Risk Oriented Solvency System ( C-ROSS ), which we believe will be implemented in According to CIRC s declaration, C-ROSS will focus on quantitative capital requirements (Pillar 1), and also contain requirements on qualitative supervisory (Pillar 2) and market discipline mechanism. (Pillar 3). We believe the new solvency regime will be positive to the large Chinese insurers. C-ROSS requires more complicated and diversified regulation. The lack of advanced professional talent and increasing administration costs will be a disadvantage to small scale insurers. The deputy head of Finance regulation department of CIRC Zhao Yulong believes that the introduction of C-ROSS would unfreeze RMB550b of capital from the insurance companies. Platinum Broking 5

6 Exhibit 5: C-ROSS C-ROSS Characteristics Unified supervision Emerging market Risk-oriented Supervision factor Quantitative Capital requirement Qualitative supervisory requirement Market discipline mechanism Supervision basement Solvency ratio management Source: CIRC, Bain and Company 1.4 The regulatory commissions of banks, Securities and insurance may integrate. The state council is considering integrating China Bank Regulatory Commission ( CBRC ), China Securities Regulatory Commission ( CSRC ) and China Insurance Regulatory Commission ( CIRC ) into one. The integrated commission will better coordinate various financial regulators, monitoring financial risks, and prevent systemic financial risks. It also will streamline the examination and approval procedures, making regulatory work more effective. We believe this is positive for the insurance sector because it will simplify examinations and approvals. Platinum Broking 6

7 SECTION 2 Macro Outlook for Insurance industry 2.1 More and more Chinese will buy insurance policies. The insurance market are expected to expand RMB2.4t in FY16, representing a YoY growth of 17%. Insurance penetration is a key index for the insurance sector and is linked to GDP. China s insurance penetration is 3.2% in 2014, significantly lower than the world average of 6.2%. China s insurance density (The average insurance expenditure per person) in 2014 is only US$232, lower than world average of US$662. Exhibit 9 shows that the insurance density correlates with GDP per capita. Based on the insurance density growth, the total industry premium would be over RMB2.4t in FY16, representing a FY14-FY16E 3-year compounded average growth rate ( CAGR ) of 11.0%. Exhibit 6: Insurance penetration comparison in 2014 Exhibit 7: Insurance density comparison in 2014 % US$ , , , , , , , , China North European Asia Africa Australia China America Insurance penetration Global average 3,968.5 North America 1,902.0 Insurance density ,600.3 European Asia Africa Australia Global average Source: National Bureau of Statistics ( NBS ), Wind Note: Insurance penetration=insurance expenditure/gdp Source: NBS, Wind Note: Insurance density=insurance expenditure/population Platinum Broking 7

8 Percentage (%) E 2016E China Insurance Sector Report NOVEMBER 2015 Exhibit 8: Total premium forecast RMB b E 2016E Total premium(b) Source: NBS, Platinum estimates Exhibit9: Insurance density & GDP per capita( ) RMB RMB 1, , , , , , , , , , , Insurance density(lhs) GDP per capita(rhs) Source: NBS, Wind, Platinum estimates 2.2 High bank deposit ratio suggests strong purchase power for insurance policies. China s deposit ratio is higher than the other countries (Exhibit 10), suggesting strong purchasing power for insurance policies, especially those linked to savings. According to International Monetary Fund ( IMF ) s estimation, China s deposit ratio would decline to 44% in FY17. Combined with the assumption of the consumption rate of 46% and the GDP growth rate of 6.5%, the available capital for insurance purchase would be RMB7.5t in 2017E. Exhibit 10: Deposit ratio comparison E 2017E 2018E 2019E 2020E China America Japan Britain Germany Brazil India Malaysia Source: International Monetary Fund( IMF ) Platinum Broking 8

9 E 2030E 2040E 2050E China Insurance Sector Report NOVEMBER Aging population brings development opportunities for commercial pensions. Current government pension plans are not sustainable, needing commercial pensions to supplement. We estimate China s population bell curve will peak between and then decline slowly. The proportion of aging population above 65 will increase from 10% to 18% in The Government currently subsidizes the social pension by RMB302b annually since If we assume the CAGR of government revenue will be 5% for , this amount will increase to RMB4.4t in 2050, which is almost 41.3% of total government revenue. Therefore, current social pension policy is unsustainable. Based on above analysis, we think the government will support the development of commercial pensions as a supplement of social pension system. Exhibit 11: Population forecast Exhibit 12: Age composition of total population million 120.0% % 80.0% 60.0% 40.0% 20.0% % E 2030E 2040E 2050E Population Proportion of Aged below 14(LHS) Proportion of Aged 65 and above(lhs) Proportion of Aged 15-64(LHS) Source: NBS, Platinum estimates Source: NBS, Platinum estimates SECTION 3 Sector Overview Embedded value favours Taiping. 3.1 Embedded value is an insurer s main valuation benchmark. It closely relates to profit growth. Embedded value ( EV ) is the main valuation benchmark for insurance company, it is derived from the adjusted worth of net assets, adding the present value of insurance contracts and minus the solvency capital requirement. Based on regression analysis, embedded value is highly correlated with profits. China Taiping Insurance ( Taiping ) has the highest correlation with R 2 (indicating the Platinum Broking 9

10 strength of correlation) of 86%, while China Pacific Insurance Company ( CPIC ) has the lowest correlation with R 2 of 46%. Therefore, we prefer the stocks with higher profit growth rate. Exhibit 13: Regression analysis EV NCI EV Taiping EV CPIC 80 R² = R² = R² = Profit Profit Profit EV Ping An China Life R² = R² = Profit Profit EV Source: Platinum research Note: NCI stands for New China Insurance 3.2 Insurers experienced stable premium growth and is expected to continue. Premium is the most important capital source for insurers for investment. Insurers profit growth is underpinned by premium growth. Exhibit 16 shows premium grew at an average year-on-year growth rate of 18% to RMB1.9t. during the period FY12-FY15. The three-year CAGR is 16.4%. Exhibit 15 shows that premium growth rate and GDP growth rate are correlated. Premium growth is a comprehensive reflection of growing GDP, growing family wealth and the increased awareness of insurance. Therefore, we think the growth trend is sustainable and will continue. We expect premium will grow at 19% YoY for at least the next two years. Platinum Broking 10

11 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun Mar-09 Aug-09 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun China Insurance Sector Report NOVEMBER 2015 Exhibit 14: Total premium and growth 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% Source: CIRC RMB ,000, ,000, ,000, ,000,000 50,000,000 - Premium Income (RMB'0000)(RHS) YoY(LHS) Exhibit 15: Real premium growth net GDP influence 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% Norminal premium growth(lhs) Real Premium growth(lhs) Norminal GDP growth(rhs) Source: CIRC, NBS 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 3.3 Insurers seek higher yield investments and real estate to burn off excess capital in response to rule changes. Insurance sector total investments grew 25% YoY and reached RMB7.7t in Aug The FY12-FY15 three year CAGR is 22.9%. Bank deposits and bonds decreased 3ppts to 24% and 35% respectively in Securities and other investment instruments increased 2ppts and 4ppts to 13% and 24% respectively. The total proportion of property investment is less than 3%. It is expanding rapidly from 1% in FY13 to 3% in FY15. The average yield on property investments are about 7%. Accordingly, the average investment yield of insurers edged up to 7.0% in 1H15. Exhibit 16: Insurance total investment & growth 900,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000,000 - RMB % 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Exhibit 17: Investment mix 120% 100% 27% 24% 80% 11% 13% 60% 40% 35% 38% 20% 24% 27% 0% Total Investments YoY Bank deposit Bond Securities & Funds Other Source: CIRC, Platinum research Source: CIRC Platinum Broking 11

12 China Insurance Sector Report NOVEMBER 2015 Exhibit 18: Average investment yield 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Source: CIRC Average investment yield Platinum Broking 12

13 SECTION 4 Financial Analysis Exhibit 19: Balance sheet As of 30 Sep 2015 Ping An China Life CPIC NCI Taiping 2813.HK 2628.HK 2601.HK 1336.HK 0966.HK Assets RMB b RMB b RMB b RMB b RMB b Cash and Cash Equivalents Financial Assets Held for Trading Customer Loans and Advances - Net 1, Equity Investment Held to Maturity Investment 1, Investment Available for Sale Other Investments Insurance receivables Reinsurance Receivable Net Fixed Assets Goodwill and Intangible Assets Land-Use Right Other Assets Total 4, , Liability Tax Payable Liabilities of Insurance Companies* 1, , Reinsurance Payable Investment Contract Liabilities Financial Liabilities Held for Trading Short-term Borrowings Long-term Loans Other Liabilities 1, Total Liabilities 4, , Shareholders' Equity: Preferred Stocks Common stock Reserves Treasury Stock Other Comprehensive Income Total Common Equity Equity Attributable to Parent Company Shareholders Minority Shareholders Interest Total Shareholders Equity Total Liabilities and Shareholders Equity 4, , Source: Company data, Wind Note*: Liabilities of Insurance companies includes insurance and annuity liabilities, unpaid claims and unearned premiums. Platinum Broking 13

14 Exhibit 20: Ratio analysis As of 30 Sep 2015 Ping An China Life CPIC NCI Taiping 2813.HK 2628.HK 2601.HK 1336.HK 0966.HK Liability of Insurance companies/assets 51.0% 79.0% 71.0% 82.0% 55.0% Return of Assets(ROA) 4.1% 2.6% 3.5% 2.4% 4.6% Growth Rate YoY(ppts) Return of Equity(ROE) 15.6% 11.6% 12.3% 16.9% 12.4% Growth Rate YoY(ppts) Net Profit Margin 10.7% 8.1% 7.9% 6.5% 7.3% Net Income / Total Profit 69.7% 77.0% 73.5% 76.2% 75.3% EBIT / Operating Revenue 25.4% 10.5% 11.8% 8.5% 10.8% Asset Turnover 12.0% 18.0% 22.0% 21.0% 21.0% Equity Multiplier Asset-liability ratio 91.5% 87.0% 85.8% 91.4% 84.8% Source: Wind, Platinum research 4.1 Integrated business model gives Ping An a tremendous capital advantage. Ping An leads in the integrated model. Due to the Ping An Insurance ( Ping An ) s banking business, its total assets are almost twice that of the second largest insurer, China Life. Ex the banking business, we estimate that the total assets of Ping An would be RMB2,813, still 20% higher than China Life s total assets Ping An adopts a less aggressive investment strategy with a concentration on bond investments a possible drag on profit growth if rates tighten significantly. For the investment mix, Ping An holds a steady investment strategy. For example, Ping An has the highest proportion (40.1%) of holding to maturity investments among its peers (the peers proportion range are from 21% to 34%). These largely consist of bond investments. 4.2 Taiping has the lowest Assets-liability ratio. Taiping has the safest asset structure with the lowest assets-liability ratio of 84.8%. Ping An reported the highest Assets-liability ratio of 91.5%, mainly influenced by its banking business. Without considering Ping An s banking business, Ping An has an Asset-liability ratio of 85.6%, which is the second lowest among peers. Platinum Broking 14

15 4.3 China Life has the highest level of surplus capital. China life has the largest potential to increase profit through the introduction of the new Solvency (ii) with profits estimated to increase by RMB6.9b as the new ratio becomes implemented and mandated solvency declines from 296% to 200%. Ping An s current solvency ratio is 204%, near to the ideal level of 200%. Therefore, profit growth via a lower mandated solvency ratio is limited. Ping An will need to rely more on premium and investment skill. Exhibit 21: Sensitivity test solvency capital reserve influence on profit Ping An(2318.HK) China Life(2628.HK) CPIC(2601.HK) NCI(1336.HK) Taiping (0966.HK) Solvency ratio Profit change Profit change Profit change Profit change Profit change RMB b RMB b RMB b RMB b RMB b 225% % % % Source: Platinum research SECTION 5 Company Outlook 5.1 Taiping will have the highest embedded value growth in FY16E. Taiping reported highest growth rate of 89.1% in 1H15. Profit growth decelerated in the third quarter, nonetheless we estimate the embedded value growth of Taiping in FY16E will be 45% and the embedded value per share will be HK$ Ping An had the second highest growth in embedded value of 45.5% in 1H15. We estimate the growth rate in FY16E would be 30% with an estimated embedded value per share of HK$ Platinum Broking 15

16 Exhibit 22: Embedded value growth 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% FY11 1H12 FY12 1H13 FY13 1H14 FY14 1H15 FY15E FY16 NCI Taiping China Life Ping An CPIC PICC Life Source: Company data, Platinum estimates Note: PICC stands for People s insurance company of China NCI stands for New China Insurance CPIC stands for China Pacific Insurance Co Taiping has the highest profit growth. Taiping restructured prior to IPO and currently excels in profit growth. Taiping reported highest profit growth of 200% in 1H15 and we assume that this high rate of growth will continue, certainly for the next fiscal year. We expect Taiping to maintain its high profit growth due to high premium growth and high investment yield of 8%, compared to industry average of 6%. Moreover, Taiping s embedded value is highly sensitive to its profit growth, meaning Taiping s strong growth momentum would translate to embedded value more efficiently than its peers, based on sensitivity analysis. If we assume Taiping s profit to grow 100% in FY16E, the embedded value would increase by 30.6% in FY16E. Exhibit 23: Net profit growth Exhibit 24: Sensitivity test - profit potential impacts on EV 250.0% 200.0% 150.0% 100.0% 50.0% 0.0% -50.0% % % PICC Group PICC P&C Taiping NCI Ping An China Life CPIC FY11 FY12 FY13 FY14 1H15 Profit growth Taiping China pacific NCI Ping An China Life 30% 9.2% 3.2% 5.6% 3.7% 0.9% 40% 12.2% 4.3% 7.5% 4.9% 1.2% 50% 15.3% 5.4% 9.4% 6.1% 1.5% 60% 18.4% 6.5% 11.3% 7.4% 1.7% 70% 21.4% 7.6% 13.2% 8.6% 2.0% 80% 24.5% 8.6% 15.1% 9.8% 2.3% 90% 27.5% 9.7% 16.9% 11.0% 2.6% 100% 30.6% 10.8% 18.8% 12.3% 2.9% R % 46.6% 82.3% 74.3% 62.1% Sources: Company data Sources: Platinum research Platinum Broking 16

17 5.1.2 Taiping to maintain the highest premium growth rate. Taiping s premium increased 24.2% in 9M15, higher than the industry average of 19.5% and we estimate it will continue to grow at 23.5% and 20.0% in FY15E and FY16E respectively. Ping An s first nine months premium growth rate was 18.2%, ranking second place among its listed peers. We estimate Ping An s premium growth would be 18.0% and 17% in FY15E and FY16E respectively. The growing premium would respectively drive up profit by 8.7% and 16.4% for Taiping and Ping An in FY16E. Exhibit 25: Premium Growth for Major insurers Premium Growth 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% E 2016E China Life CPIC Taiping PICC Ping An NCI -20.0% Source: Company Data, Platinum estimates 5.2 Investment yield Comparison. New China sets high benchmark in yield investments. New China Insurance ( NCI ) reported the top investment yield of 10.5% in 1H15, followed by Taiping. Taiping shows a more stable trend than NCI, thanks to Taiping s sound investment strategy. Therefore, under current market conditions, we estimate Taiping s total yield to be 7% in FY16E. Ping An s total yield has the third highest total investment yield of 7.7% in 1H15. In third quarter, Ping An s yield improved by 0.1ppt to 7.8% in the falling market, mainly thanks to its comprehensive business model. Therefore, we estimate Ping An s total investment yield to fall marginally to 6.8% in FY16E due to a decreasing interest rate environment. Platinum Broking 17

18 Exhibit 26: Total investment yield 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% CPIC China Life Taiping Life Ping An NCI PICC P&C 2.0% FY11 FY12 FY13 FY14 1H15 FY15E FY16E Source: Company Data, Platinum estimates 5.3 Cost control Comparison. Ping An excels in cost control. Ping An has the lowest combined ratio which indicates high management efficiency. Ping An s business model is comprehensive and mature and we think its combined ratio will decline to 93% in FY16E, backed on its improving management efficiency. The only possible caveat to this for Ping An would be a very steep lift off in global interest rates and the detrimental effect on the existing bond portfolio investments. Taiping s cost control ability is relatively weak among the four listed peers. Although Taiping has the highest premium growth rate, we note it also has the highest surrender ratio of 8.6% in 1H15 (buying a policy and cancelling). The lowest surrender ratio is Ping An (1.3% in 1H15), with China Life at 4% in 1H15. This is mainly due to the fact that the higher than average yield in the front end of the policy encourages churn which results in a higher surrender ratio. Despite Taiping having the highest surrender ratio, it still saw the strongest premium growth, indicating the weak cost control ability has been offset by the strong premium growth, thanks to the expanding insurance market and its high yield products. Platinum Broking 18

19 Exhibit 27: Combined ratio for Major Property & Casualty insurers 105.0% 100.0% 95.0% 90.0% 85.0% PICC P&C CPIC P&C Ping An P&C Taiping P&C 80.0% Source: Company Data, Platinum estimates Note: PICC P&C stands for People insurance company of China s property and casualty business SECTION 6 Exhibit 28: Comparables Name Ticker FY14 Total Assets (HK$m) Valuation Mkt cap (HK$m) Closing price (HK$) 52-week High/Low (HK$) 6M Turnover (HK$m) FY14 P/E (x) FY15E P/E (x) FY16E P/E (x) FY14 P/B (x) FY15E P/B (x) FY16E P/B (x) FY14 P/EV (x) FY15E P/EV (x) FY16E P/EV (x) Group 1 1 China Life 2628 HK 2,246, , / , Ping An 2318 HK 4,005, , / , CPIC 2601 HK 825, , / Taiping 966 HK 443,549 86, / PICC P&C 2328 HK 366, , / PICC 1339 HK 782, , / NCI 1336 HK 643, , / Simple avg Mkt cap wtd avg Note: Closing prices were on 23 Nov 2015 Source: Bloomberg, Platinum research 6.1 Ping An is our preferred pick (TP: HK$65.36, + premium of 48.2%, BUY). Ping An is trading at P/EV of 0.57x in FY15, lower than industry average of 0.75x. It has the largest capital assets scale among peers and holds a steady investment strategy. Platinum Broking 19

20 Ping An s integrated finance strategy would help to maintain a stable investment yield of 6.8% in FY16E. The expanding insurance market would help Ping An to maintain current premium growth at above 20%. As one of the largest insurers in China, the upcoming C-ROSS supervision system would unfreeze additional capital for additional investments. We estimate Ping An s embedded value per share ( EVPS ) in FY16E to be HK$99.03, indicating 20% growth. We arrive at the target price of HK$65.36, with a P/EV of 0.66x, in line with industry average. 6.2 Taiping will continue to excel (TP: HK$34.7, + premium of 44.6%, BUY) Taiping has grown rapidly in the past few years and we think this trend will continue given the expanding China insurance market. It has suffered from an early image of high policy turnover which we think is unjustified. Accordingly, we assign a 10% premium to the market average Price/Embedded value per share ( P/EV ) (0.66x in FY16E), to reflect its much higher than average profit growth and embedded value growth. We estimate the EVPS in FY16E would be HK$49.6, backed by a growth rate of 45% We estimated the target price in FY16E would be HK$34.7, at a P/EV of 0.72x, representing a premium of 41.6%. Platinum Broking 20

21 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Volume (m shares) Share price (HK$) Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Volume (m shares) Share price (HK$) China Insurance Sector Report NOVEMBER 2015 Exhibit 29: Ping An 2-year Price Chart Ping An Insurance Group Co-H (2318.HK) Last price (Nov 26,15) = HK$44.3 SMA(50) = SMA(100) = SMA(200) = Volume (Nov 26,15) = 15.5m 6M avg. = m Source:Bloomberg Exhibit 30: Taiping 2-year Price Chart China Taiping Insurance Hold (966.HK) Last price (Nov 26,15) = HK$23.8 SMA(50) = SMA(100) = SMA(200) = Volume (Nov 26,15) = 3.5m 6M avg. = 203.3m Source:Bloomberg Platinum Broking 21

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24 IMPORTANT HONG KONG REGULATORY DISCLOSURES ON HONG KONG LISTED COMPANIES OF WHICH WE HAVE COMMENTED ON. Research Certification. No part of the compensation of the analyst(s) who are primarily responsible for producing this report was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the analyst(s) in this research. Market Making. This firm does not make a market in securities of the companies covered in this report. Conflicts of Interest. This firm does not own 1% or more of the common class of securities of the companies covered in this report. The analysts involved in the preparation of this report do not have financial interests in the common class of securities of the companies covered in this report. Investment Banking. Within the past 12 months a company controlled by the holding company of this firm has not provided investment banking services to, and received compensation from, one of the companies covered in this report. Relevant relationships. This firm and individuals employed by or associated with the firm are not officers of the companies covered in this report. General Disclosures. This report is for distribution only under such circumstances and in such jurisdictions as may be permitted by applicable law. This report is not intended to offer or solicit purchase or sale of any financial instrument in any jurisdiction where such an offer or solicitation would be illegal, including but not limited to the United States of America and the United Kingdom and the rest of Europe. It does not take into account the specific investment objectives, financial situation or needs of any specific recipient. While reasonable effort has been made to ensure the information contained herein is not untrue or misleading at the time of publication, its correctness and completeness are not guaranteed, and they are subject to change without notice. Neither Platinum Broking Company Limited, nor any of its holding or affiliated companies, nor any of its or their directors or employees, represent or warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which may be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents thereof. Use of any information herein shall be at the sole discretion and risk of the user. Investors are expected to make their own investment decisions without relying on this publication. This report is produced by Platinum Broking Company Limited Hong Kong Office: 21/F LHT Tower, 31 Queen s Road Central, Hong Kong Telephone: Fax: Shanghai Office: Platinum Holdings Company Ltd (Shanghai Representative Office) 11B Jin Ming Building, Block 2, 8 South Zun Yi Road, Shanghai Tel: Fax: Singapore Office: Platinum Securities Company Ltd, 1 Scotts Road #24-14 Shaw Centre, Singapore Tel: Fax: Platinum Broking Company Limited. All rights reserved. This publication may not be reproduced, distributed or published by any person for any purpose without the prior express consent of Platinum Broking Company Limited. Platinum Broking 24