china insurance sector -...

Deutsche Bank Markets Research

Asia

Hong Kong

Banking / Finance

Insurance

Industry

China Insurance Sector

Date

20 June 2016

Industry Update

May premium – stable Life, a weak month for P&C

Life momentum held up while P&C weakened

________________________________________________________________________________________________________________

Deutsche Bank AG/Hong Kong

Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 057/04/2016.

Esther Chwei

Research Analyst

(+852 ) 2203 6200

[email protected]

Lexie Zhou

Research Associate

(+852 ) 2203 6180

[email protected]

Top picks

China Life (2628.HK),HKD16.42 Buy

CTIH (0966.HK),HKD13.72 Buy

Source: Deutsche Bank

Companies Featured

China Life (2628.HK),HKD16.42 Buy

Ping An (2318.HK),HKD33.75 Buy

CPIC (2601.HK),HKD25.95 Buy

NCI (1336.HK),HKD26.30 Buy

CTIH (0966.HK),HKD13.72 Buy

PICC Group (1339.HK),HKD3.01

PICC P & C (2328.HK),HKD13.42

China Re (1508.HK),HKD1.74 Hold

China Life (601628.SS),CNY20.40 Buy

Ping An (601318.SS),CNY32.00 Buy

CPIC (601601.SS),CNY27.11 Buy

NCI (601336.SS),CNY40.06 Hold

Source: Deutsche Bank

Robust growth momentum continued for life insurers in May, ranging from 8.3-50.6% (Apr: 7.7-44.4%), with most insurers reporting double-digit growth. Ch Taiping’s growth in May slowed to 10.4% (vs. 19.8% in April) due to timing of product launch (should pick up with product launch in June), 5M16 growth in individual regular premiums remained strong at 38.5%. May was a weak month for P&C premium, ranging from -4.6-13.7% (Apr: -0.9-36.3%), with top-3 player recording negative or single-digit. 4M16 P&C industry claims payout ratio saw continued deterioration based on CIRC data. We reiterate our preference for Life insurers. Top Picks: CL and Taiping.

Life – stable growth PICC Group led May growth at 50.6% (vs. -8.5% in April) thanks to a low base last year. Ping An followed at 33.2% (+39.6%), NCI at 27.1% (+44.4%), CPIC at 24.5% (+15.2%), Taiping at 10.4% (+19.8%) and China Life at 8.3% (+7.7%). According to Ch Taiping’s disclosure, May growth was mainly driven by bancassurance (+20.9%, with single +17.0% and regular +21.3%). Individual growth was slow at 5.7% driven by regular premium growth of 8.3% (single -86.6%) as the company focused on agent training in May, in preparation for the June product launch. In terms of YTD performance, CPIC led at 33.4% (vs. +35.0% in 4M16), followed by Ping An at 32.7% (+32.6%), PICC Group at 27.7% yoy (+26.7%), China Life at 26.1% (+28.6%), Taiping at 17.6% (+18.4%), and NCI at -2.6% (-5.3%).

P&C – a weak month P&C premium growth in May continued to deteriorate with Ping An and CPIC recording negative growth. PICC P&C’s growth also dropped to single digit. The industry’s actual claim payout ratio continued to rise in April (+1.2ppt to 48.9%). Should this trend continue, 2016 combined ratio could surprise on the downside. On a monthly basis, Ch Taiping led at 13.7% (vs. +36.3% in April), followed by Ch Continent at 12.7% (+13.3%), PICC at 4.8% (+11.1%), Ping An at -0.9% (+3.4%), and CPIC at -4.6% (-0.9%). On a YTD basis, Ch Taiping led at 19.9% (vs. +21.5% in 4M16), followed by Ch Continent at 19.1% (+20.5%), PICC at 12.6% (+14.5%), Ping An at 2.9% (+3.8%) and CPIC at 2.6% (+4.3%).

Staying positive on life; valuations too cheap to ignore We remain positive on life insurers as we believe market concerns are overdone. The sector is currently trading at a depressed valuation of 0.8x 2016E P/EV, even after assuming a long-term investment return of 3.5% and a ~30% decline in A-share markets in 2016. We believe this is unjustified given the sector’s robust 2016E growth outlook on VNB (average ~23.3%). Also, we continue to believe that listed life insurers are rational in their pricing behavior and have room to pass on investment yield pressure to policyholders. Our top picks remain China Life and Ch Taiping. We believe the market is overly concerned about China Life’s HGR products. We note that China Life cut its Universal Life (UL) crediting rates by 50bps in April and May to 4.5% (from 5.0% in March 2016), contrary to the market view that insurers will continue to pay high returns due to competitive pressure. We still see Ch Taiping as a deep value play, with the shares trading at 0.5x 2016E P/EV. Investment risks include significant weakness in China’s investment markets, asset quality risks, and weaker-than-expected growth.

20 June 2016

Insurance



May 2016 premiums

Premium snapshot

Life premiums: China Life reported 5M16 life premiums of Rmb250,200m

(+26.1% yoy), Ping An Rmb152,446m (+32.7%), CPIC Rmb68,662m (+33.4%),

NCI Rmb60,825m (-2.6%), Taiping Life Rmb52,551m (+17.6%) and PICC Life

and Health Rmb95,480m (+27.7%). In terms of monthly premiums in May,

China Life recorded Rmb26,567m (+8.3% yoy), Ping An Rmb20,605m

(+33.2%), CPIC Rmb9,481m (+24.5%), NCI Rmb6,494m (+27.1%), Taiping

Rmb4,802m (+10.4%), and PICC Life and Health Rmb4,577m (+50.6%).

P&C premiums: PICC reported 5M16 P&C premiums of Rmb132,021m

(+12.6% yoy), Ping An Rmb69,949m (+2.9%), CPIC Rmb41,481m (+2.6%), Ch

Taiping Rmb7,566m (+19.9%) and Ch Continent Rmb13,080m (+19.1%). In

May, PICC achieved premiums of Rmb24,533m (+4.8%), Ping An Rmb12,931m

(-0.9%), CPIC Rmb7,511m (-4.6%), Ch Taiping Rmb1,465m (+13.7%) and Ch

Continent Rmb2,328m (+12.7%).

Figure 1: May-2016 premium summary

Life YTD yoy Monthly yoy

China Life 250,200 26.1% 26,567 8.3%

Ping An 152,446 32.7% 20,605 33.2%

Ping An Life 144,243 33.0% 19,144 35.8%

Ping An Health 270 32.0% 40 7.7%

Ping An Annuity 7,933 27.8% 1,421 6.9%

CPIC 68,662 33.4% 9,481 24.5%

NCI 60,825 -2.6% 6,494 27.1%

CTIH 52,551 17.6% 4,802 10.4%

PICC – total 95,480 27.7% 4,577 50.6%

PICC Life 75,954 20.9% 4,020 63.6%

PICC Health 19,526 63.2% 557 -4.3%

P&C YTD yoy Monthly yoy

PICC 132,021 12.6% 24,533 4.8%

Ping An 69,949 2.9% 12,931 -0.9%

CPIC 41,481 2.6% 7,511 -4.6%

CTIH 7,566 19.9% 1,465 13.7%

Ch Continent 13,080 19.1% 2,328 12.7% Source: Company data, Deutsche Bank

Life premiums – growth momentum continued

PICC Group led May growth at 50.6% (vs. -8.5% in April) thanks to a low base

last year. Ping An followed at 33.2% (+39.6%), NCI at 27.1% (+44.4%), CPIC at

24.5% (+15.2%), Taiping at 10.4% (+19.8%) and China Life at 8.3% (+7.7%).

According to Ch Taiping’s disclosure, May growth was mainly driven by

bancassurance (+20.9%, with single +17.0% and regular +21.3%). Individual

growth was slow at 5.7% mainly dragged down by moderated growth in

20 June 2016

Insurance



regular premiums, which was mainly due to the timing of product launch (no

promotions in May) and the company’s focus on agent training in May. In

terms of YTD performance, CPIC led at 33.4% (vs. +35.0% in 4M16), followed

by Ping An at 32.7% (+32.6%), PICC Group at 27.7% yoy (+26.7%), China Life

at 26.1% (+28.6%), Taiping at 17.6% (+18.4%), and NCI at -2.6% (-5.3%).

Figure 2: Accumulated life premium growth (yoy) Figure 3: Monthly life premium growth (yoy)

26.1% 32.7%33.4%

-2.6%

17.6%

27.7%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

China Life Ping An CPIC NCI Taiping Life PICC Life

May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15

Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16

8.3%33.2%

24.5% 27.1%10.4%

50.6%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

China Life Ping An CPIC NCI Taiping Life PICC Life

May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16

Source: Company data, Deutsche Bank


P&C premiums – deteriorating growth

P&C premium growth in May continued to deteriorate and both Ping An and

CPIC recorded negative growth. PICC P&C’s growth also dropped to single

digit. The industry’s actual claim payout ratio continued to rise in April (+1.2ppt

to 48.9%). We believe should this trend continues, the 1H16 combined ratio

may surprise on the downside. On a monthly basis, Ch Taiping led at 13.7%

(vs. +36.3% in April), followed by Ch Continent at 12.7% (+13.3%), PICC at

4.8% (+11.1%), Ping An at -0.9% (+3.4%), and CPIC at -4.6% (-0.9%). On a YTD

basis, Ch Taiping led at 19.9% (vs. +21.5% in 4M16), followed by Ch Continent

at 19.1% (+20.5%), PICC at 12.6% (+14.5%), Ping An at 2.9% (+3.8%) and

CPIC at 2.6% (+4.3%).

Figure 4: YTD P&C premium growth Figure 5: Monthly P&C premium growth

12.6%

2.9%2.6%

19.9% 19.1%

0%

5%

10%

15%

20%

25%

30%

PICC Ping An CPIC CTIH Ch Continent


4.8%

-0.9%-4.6%

13.7%12.7%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

PICC Ping An CPIC CTIH Ch Continent




20 June 2016

Insurance



Premium update by company

China Life

China Life reported May 2016 premiums of Rmb26,567m, up 8.3% yoy

compared with a 7.8% yoy rise in April 2016. 5M16 premiums were

Rmb250,200m, representing 26.1% yoy growth compared with 28.6% yoy

growth in 4M16.

Figure 6: China Life – monthly life premiums

-60%

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Rmb bn

Life monthly premiums (LHS) Monthly YoY growth (RHS) YTD YoY Growth(RHS)

Source: Company Data, Deutsche Bank

Ping An

Life: Ping An reported monthly premiums of Rmb20,605m, up 33.2% yoy,

compared with a 39.6% yoy rise in April 2016. 5M16 life premiums were

Rmb152,446m, which was a 32.7% yoy increase, compared with a 32.6% yoy

increase in 4M16.

P&C: On a monthly basis, Ping An P&C declined 0.9% yoy vs. 3.4% growth in

April 2016. Premiums were Rmb69,949m in 5M16, representing 2.9% growth

vs. 3.8% in 4M16.

20 June 2016

Insurance



Figure 7: Ping An – monthly life premiums Figure 8: Ping An – monthly P&C premiums

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Monthly premiums - Life(LHS) Monthly yoy growth(RHS) YTD yoy growth(RHS)

Rmb mn

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Monthly premiums - P&C(LHS) Monthly yoy growth(RHS) YTD yoy growth(RHS)

Rmb mn



CPIC

Life: CPIC’s life premiums were Rmb9,481m in May 2016, up 24.5% yoy,

compared with 15.2% yoy growth in April 2016. For 5M16 CPIC reported

Rmb68,662m, up 33.4% yoy, compared with a 35.0% yoy increase in 4M16.

P&C: May 2016 premiums were Rmb7,511m, down 4.6% yoy, vs. -0.9% in

April 2016. CPIC recorded Rmb41,481m premiums for 5M16, up 2.6% yoy, vs.

4.3% yoy growth in 4M16.

Figure 9: CPIC – monthly life premiums Figure 10: CPIC – monthly P&C premiums

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Life monthly premiums (LHS) Monthly yoy growth(RHS) YTD yoy growth(RHS)

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Monthly premiums P&C (LHS) Monthly yoy growth(RHS) YTD yoy growth(RHS)

Rmb mn



NCI

NCI reported premiums of Rmb6,494m for May 2016, up 27.1% yoy, from

44.4% yoy in April 2016. NCI had Rmb60,825m cumulative premiums for

5M16, representing a decrease of 2.6% yoy, while the yoy decline was 5.3% in

4M16.

20 June 2016

Insurance



Figure 11: NCI – monthly life premiums

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Life monthly premiums (LHS) Monthly yoy Growth (RHS) YTD yoy growth (RHS)

Rmb mn


China Taiping

Life: Taiping Life saw premium growth of 10.4% yoy to Rmb4,802m in May

2016, vs. 19.8% yoy growth in April 2016. The growth was mainly driven by

bancassurance (+20.9%, with single +17.0% and regular +21.3%). Life

annualized premium equivalent (APE) increased by 11.9% yoy, vs. +17.3% yoy

in the previous month. For 5M16, Taiping Life reported premium growth of

17.6% yoy, vs. 18.4% yoy in 4M16. The individual channel was up 36.0% yoy,

vs. 41.7% yoy growth in 4M16. The bancassurance channel grew 4.1% yoy, vs.

3.2%.

Figure 12: Taiping life premium breakdown (May-2016)

TPL, Rmb m YTD yoy Monthly yoy

Total 52,551 17.6% 4,802 10.4%

Individual 25,124 36.0% 3,089 5.7%

Single 48 -87.0% 11 -86.6%

Regular 25,076 38.5% 3,078 8.3%

Bancassurance 26,607 4.1% 1,562 20.9%

Single 17,884 -0.6% 129 17.0%

Regular 8,723 15.3% 1,433 21.3%

Other channels 819 24.6% 152 12.9%

Single 28 13308.5% 1 538.3%

Regular 791 20.4% 150 12.1%

APE 36,387 29.2% 4,675 11.9%

Individual 25,081 38.2% 3,079 8.1%

Bancassurance 10,512 12.2% 1,446 21.2%

Others 794 20.8% 150 12.2% Source: Company data, Deutsche Bank

20 June 2016

Insurance



Figure 13: Taiping – monthly life premiums Figure 14: Taiping – monthly APE

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Rmb mn

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Rmb mn



Figure 15: Taiping – monthly individual APE Figure 16: Taiping – monthly bancassurance APE

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Rmb mn



P&C: Taiping P&C saw premiums of Rmb1,465m in May 2016, representing

growth of +13.7% yoy, vs. +36.3% yoy in April 2016. For 5M16, Taiping P&C

had Rmb7,566m premiums, growing 19.9% yoy vs.21.5% in 4M16.

Figure 17: Taiping – monthly P&C premiums

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0200400600800

1,0001,2001,4001,6001,8002,000

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20 June 2016

Insurance



PICC Group

Life: PICC’s life and health segments reported May 2016 premiums of

Rmb4,020m and Rmb557m, with growth rates of 63.6% and -4.3% yoy, vs.

April 2016’s -18.6% yoy and 61.6%, respectively. YTD growth rates were

+20.9% and 63.2%.

P&C: PICC P&C reported May 2016 premiums of Rmb24,533m, an increase of

4.8% yoy, moderating from 11.1% growth in April 2016. YTD growth was

12.6% vs. 14.5% in 4M16.

Figure 18: PICC – monthly life premiums Figure 19: PICC – monthly P&C premiums

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-16

May

-16

Monthly premiums (LHS) Monthly yoy growth (RHS) YTD yoy growth (RHS)

Rmb mn



China Continent

Ch Continent reported May 2016 premiums of Rmb2,328m, up 12.7% yoy, vs.

13.3% yoy in April 2016. YTD growth was 19.1% yoy vs. 20.5% yoy in 4M16.

Figure 20: Ch Continent – monthly P&C premiums

-20%

-10%

0%

10%

20%

30%

40%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Jan

-13

Mar

-13

May

-13

Jul-

13

Sep

-13

No

v-1

3

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Monthly premium (LHS) Monthly YoY growth (RHS) YTD YoY growth (RHS)

Rmb mn


20 June 2016

Insurance



Appendix A

Industry life premiums

Figure 21: Industry life premiums

Industry YTD (Rmb m) May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16

China Life 198,368 234,155 253,220 277,505 310,459 329,221 347,296 364,054 123,785 158,700 201,648 223,600 250,200

Ping An – total 114,862 130,691 144,911 159,195 174,952 190,063 204,840 222,057 69,447 89,743 111,827 131,842 152,446

China Pacific Life 51,466 62,465 73,521 80,209 89,552 97,567 103,975 108,589 25,864 36,340 52,350 59,181 68,662

NCI 62,475 72,661 80,036 85,628 94,623 102,464 107,302 111,859 21,670 33,456 46,575 54,331 60,825

Tai Ping 44,689 50,194 53,681 57,850 63,383 68,766 73,329 79,923 27,208 34,692 42,151 47,749 52,551

PICC – total 74,780 79,860 84,900 89,803 94,604 98,602 102,234 105,529 57,169 77,013 87,461 90,903 95,480

Yoy growth

China Life 19.0% 18.9% 18.7% 16.6% 14.4% 13.4% 11.1% 9.9% 44.0% 38.2% 31.4% 28.6% 26.1%

Ping An – total 17.7% 18.2% 19.1% 19.7% 20.0% 20.3% 20.4% 21.2% 42.5% 34.6% 31.5% 32.6% 32.7%

China Pacific Life 1.5% 3.8% 11.9% 11.6% 10.9% 10.4% 10.2% 10.0% 59.6% 42.0% 38.1% 35.0% 33.4%

NCI 4.9% 9.0% 10.6% 10.5% 9.7% 7.0% 4.3% 1.8% -25.0% -21.0% -10.4% -5.3% -2.6%

Tai Ping 24.1% 25.1% 24.9% 24.9% 24.7% 24.3% 22.3% 22.7% 37.6% 31.1% 18.2% 18.4% 17.6%

PICC – total 12.6% 10.9% 9.9% 10.0% 10.0% 10.5% 11.2% 11.7% 106.8% 61.9% 28.7% 26.7% 27.7%

Average 13.3% 14.3% 15.8% 15.6% 15.0% 14.3% 13.3% 12.9% 44.2% 31.1% 22.9% 22.7% 22.5%

Monthly (Rmb m) May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16

China Life 24,527 35,787 19,065 24,285 32,954 18,762 18,075 16,759 123,785 34,915 42,948 21,952 26,567

Ping An 15,466 15,829 14,220 14,285 15,757 15,111 14,777 17,217 69,447 20,296 22,085 20,014 20,605

CPIC 7,618 10,998 11,056 6,688 9,343 8,015 6,408 4,614 25,864 10,476 16,010 6,831 9,481

NCI 5,109 10,186 7,374 5,592 8,996 7,841 4,839 4,556 21,670 11,786 13,119 7,756 6,494

Taiping Life 4,349 5,505 3,487 4,169 5,533 5,383 4,562 6,594 27,208 7,485 7,459 5,598 4,802

PICC – total 3,039 5,079 5,040 4,904 4,800 3,998 3,632 3,295 57,169 19,844 10,448 3,442 4,577

Yoy growth

China Life 29.7% 18.6% 15.4% -1.0% -1.4% -1.7% -18.8% -9.6% 44.0% 20.8% 11.3% 7.7% 8.3%

Ping An 23.2% 22.3% 27.5% 26.9% 22.8% 23.8% 21.4% 31.2% 42.5% 13.3% 20.0% 39.6% 33.2%

CPIC 8.7% 16.0% 100.5% 9.0% 5.0% 4.6% 8.7% 5.3% 59.6% 11.7% 29.9% 15.2% 24.5%

NCI -5.7% 42.8% 30.2% 8.5% 3.0% -18.1% -31.4% -35.1% -25.0% -12.2% 35.8% 44.4% 27.1%

Taiping Life* 20.8% 33.1% 22.4% 24.6% 22.5% 19.8% -0.9% 27.2% 37.6% 12.0% -19.0% 19.8% 10.4%

PICC – total -19.8% -9.1% -4.0% 11.8% 10.9% 23.5% 35.1% 26.7% 106.8% -0.4% -48.8% -8.5% 50.6%

Average 9.5% 20.6% 32.0% 13.3% 10.5% 8.7% 2.4% 7.6% 44.2% 7.5% 4.9% 19.7% 25.7% Source: Company data, CIRC, Deutsche Bank

20 June 2016

Insurance



Industry P&C premiums

Figure 22: Industry P&C premiums

Industry YTD (Rmb m) May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16

PICC P&C 42,125 42,157 42,189 42,221 42,253 42,285 42,317 42,349 42,381 42,413 42,442 42,473 42,491

Ping An 117,265 145,926 167,478 187,786 211,658 231,870 253,938 281,010 32,488 49,991 81,451 107,488 132,021

CPIC 67,972 81,443 94,623 107,018 121,638 134,238 147,635 163,641 19,911 29,516 43,552 57,018 69,949

Taiping 40,444 48,253 55,637 62,645 70,632 77,720 85,394 94,439 11,132 16,881 25,805 33,970 41,481

China Continent 10,986 13,226 15,172 17,133 19,604 21,783 24,089 26,589 3,373 5,235 8,288 10,753 13,080

Yoy growth

PICC P&C 10.4% 10.7% 10.7% 10.5% 10.4% 10.5% 10.7% 11.3% 9.2% 12.3% 15.7% 14.5% 12.6%

Ping An 18.5% 18.5% 17.6% 16.3% 15.7% 15.4% 14.8% 14.5% 5.9% 2.9% 3.9% 3.8% 2.9%

CPIC 1.0% 0.3% 0.2% 0.2% 0.1% 0.6% 1.1% 1.7% 4.9% 5.5% 6.0% 4.3% 2.6%

Taiping 20.5% 23.8% 24.0% 23.1% 21.6% 20.6% 18.5% 17.7% 14.3% 13.9% 16.5% 21.5% 19.9%

China Continent 20.5% 19.8% 18.9% 17.8% 17.5% 18.1% 18.5% 18.9% 23.8% 22.3% 22.9% 20.5% 19.1%

Average 14.2% 14.6% 14.3% 13.6% 13.1% 13.0% 12.7% 12.8% 11.6% 11.4% 13.0% 12.9% 11.4%

Monthly (Rmb m) May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16

PICC P&C 23,412 28,661 21,552 20,308 23,871 20,212 22,068 27,072 32,488 17,503 31,460 26,037 24,533

Ping An 13,046 13,470 13,180 12,395 14,621 12,600 13,397 16,006 19,911 9,605 14,036 13,466 12,931

CPIC 7,873 7,808 7,384 7,008 7,987 7,088 7,674 9,045 11,132 5,749 8,924 8,165 7,511

Taiping 1,289 1,553 1,279 1,206 1,372 1,176 1,167 1,550 1,780 994 1,600 1,728 1,465

China Continent 2,066 2,240 1,946 1,961 2,472 2,178 2,306 2,500 3,373 1,862 3,053 2,465 2,328

Yoy growth

PICC P&C 11.2% 11.9% 10.6% 9.2% 9.6% 11.7% 13.0% 17.2% 9.2% 18.4% 21.5% 11.1% 4.8%

Ping An 16.0% 18.9% 12.1% 7.1% 11.9% 11.9% 9.0% 12.6% 5.9% -2.8% 6.2% 3.4% -0.9%

CPIC -2.1% -3.5% 0.0% -0.1% -0.5% 5.7% 6.4% 8.1% 4.9% 6.7% 7.1% -0.9% -4.6%

Taiping 23.4% 39.2% 25.4% 16.8% 11.0% 11.5% -0.2% 10.5% 14.3% 13.1% 21.2% 36.3% 13.7%

China Continent 17.8% 16.7% 13.0% 10.2% 15.7% 23.8% 21.8% 23.3% 23.8% 19.6% 23.9% 13.3% 12.7%

Average 13.3% 16.6% 12.2% 8.6% 9.5% 12.9% 10.0% 14.4% 11.6% 11.0% 16.0% 12.7% 5.1% Source: Company data, CIRC, Deutsche Bank

20 June 2016

Insurance



Valuation and target prices

Insurance valuation comparison

Figure 23: Current valuation (17-Jun-2016)

Price Mkt Cap P/EV (Group) (x) Implied P/EV (Life) (x) Implied NB multiple (x) VNB growth

LC US$ bn 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E

China Life – H 16.4 80.2 0.9 0.8 0.7 0.9 0.8 0.7 -2.3 -4.0 -5.1 38.9% 22.9% 19.3%

Ping An – H 33.8 78.8 1.1 0.9 0.8 1.0 0.8 0.7 -0.1 -1.6 -3.1 35.6% 23.1% 19.6%

CPIC – H 26.0 33.6 1.2 1.1 1.0 1.1 1.0 0.9 1.0 0.5 -0.7 37.8% 23.3% 19.5%

NCI – H 26.3 16.2 0.9 0.8 0.7 0.9 0.8 0.7 -4.1 -6.2 -8.4 34.8% 22.2% 18.4%

CTIH 13.7 6.4 0.6 0.5 0.5 0.3 0.2 0.2 -14.2 -13.3 -13.5 39.1% 25.2% 21.9%

H-listed CN average 0.9 0.8 0.8 0.8 0.7 0.7 -4.0 -4.9 -6.1 37.2% 23.3% 19.7%

AIA 44.6 69.2 1.8 1.7 1.5 1.8 1.7 1.5 14.2 10.5 7.5 19.1% 22.3% 17.5%

H-listed average

1.1 1.0 0.9 1.0 0.9 0.8 -0.9 -2.4 -3.9 34.2% 23.2% 19.4%

China Re 1.74 9.5 0.9 0.9 0.9 8.2 11.4 10.2

China Life – A 20.4

1.3 1.2 1.0 1.3 1.2 1.0 5.9 3.4 0.3 38.9% 22.9% 19.3%

Ping An – A 32.0

1.2 1.0 0.9 1.2 1.0 0.8 2.3 0.2 -2.3 35.6% 23.1% 19.6%

CPIC – A 27.1

1.4 1.4 1.2 1.5 1.4 1.2 5.7 4.4 1.8 37.8% 23.3% 19.5%

NCI – A 40.1

1.6 1.5 1.3 1.6 1.5 1.3 16.9 16.0 9.1 34.8% 22.2% 18.4%

A-listed average 1.4 1.3 1.1 1.4 1.3 1.1 7.7 6.0 2.2 36.8% 22.9% 19.2% Note: Ping An and China Taiping valuations are adjusted for 10% valuation discount; China Re, P/EV is P/B and Implied NB multiples is PE Source: Company data, Bloomberg Finance LP, Deutsche Bank estimates

Figure 24: Target valuation

Target Rating Upside P/EV (Group) (x) Implied P/EV (Life) (x) Implied NB multiple (x) VNB growth

LC 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E

China Life – H 29.9 Buy 82% 1.6 1.5 1.3 1.6 1.5 1.3 11.7 10.8 6.5 38.9% 22.9% 19.3%

Ping An – H 51.9 Buy 54% 1.6 1.5 1.3 2.0 1.8 1.4 9.8 7.9 3.9 35.6% 23.1% 19.6%

CPIC – H 39.4 Buy 52% 1.8 1.8 1.6 2.0 2.0 1.6 11.0 10.8 7.1 37.8% 23.3% 19.5%

NCI – H 36.2 Buy 38% 1.2 1.2 1.0 1.2 1.2 1.0 5.5 6.5 1.0 34.8% 22.2% 18.4%

CTIH 30.8 Buy 124% 1.3 1.2 1.0 1.4 1.2 1.0 8.3 4.1 0.8 39.1% 25.2% 21.9%

H-listed CN avg 1.5 1.4 1.2 1.6 1.6 1.3 9.2 8.0 3.9 37.2% 23.3% 19.7%

AIA 56.5 Buy 27% 2.3 2.1 1.9 2.3 2.1 1.9 22.6 17.4 13.4 19.1% 22.3% 17.5%

H-listed avg 1.6 1.5 1.4 1.7 1.6 1.4 11.4 9.6 5.4 34.2% 23.2% 19.4%

China Re 2.42 Hold 39% 1.2 1.3 1.2 11.4 16.7 14.2

China Life – A 26.8 Buy 31% 1.7 1.5 1.3 1.7 1.5 1.3 11.7 10.8 6.5 38.9% 22.9% 19.3%

Ping An – A 46.6 Buy 46% 1.7 1.5 1.3 2.2 1.8 1.4 9.8 7.9 3.9 35.6% 23.1% 19.6%

CPIC – A 35.4 Buy 31% 1.9 1.8 1.6 2.1 2.0 1.6 11.0 10.8 7.1 37.8% 23.3% 19.5%

NCI – A 32.5 Hold -19% 1.3 1.2 1.0 1.3 1.2 1.0 5.5 6.5 1.0 34.8% 22.2% 18.4%

A-listed average 1.6 1.5 1.3 1.8 1.6 1.4 9.5 9.0 4.6 36.8% 22.9% 19.2% Note: Ping An and China Taiping valuations are adjusted for 10% valuation discount; China Re, P/EV is P/B and Implied NB multiples is PE Source: Company data, Bloomberg Finance LP, Deutsche Bank estimates

20 June 2016

Insurance



China Life – H (Buy; target price of HK$29.9/share)

China Life – A (Buy; target price of Rmb26.8/share)

We value China Life’s business at Rmb759bn based on appraisal value. We

calculate our appraisal value as the sum of the following:

Embedded value, which consists of adjusted net worth (ANW) of

Rmb280bn and in-force value of Rmb340bn.

The value of future new business, which we estimate by multiplying

our 2016E VNB forecast by an NB multiple of 10.8x.

We have adjusted both our EV and the value of future new business

for a lower long-term investment return assumption of 3.5%, vs. 5.5%

currently.

Figure 25: China Life – valuation summary

Rmb bn HK$ Rmb

2016E Total Per share Per share

Adjusted net worth 279.9 11.0 9.9

Value of in-force 339.7 13.4 12.0

EV 619.6 24.4 21.9

Adj. EV for lower LT inv return – (i) 492.5 19.4 17.4

VNB 38.8 1.5 1.4

Adj. VNB 24.8 1.0 0.9

NB multiple (x) 10.8 10.8 10.8

Value of future NB – (ii) 266.4 10.5 9.4

Appraisal value: (i) + (ii) 758.9 29.9 26.8

Source: Deutsche Bank estimates

Ch Taiping (Buy; target price of HK$30.8/share)

We value Taiping at HK$111bn, which we base on a sum-of-the-parts

valuation and a 10% discount for its diverse operations. 71% of our valuation

comes from its life insurance business, which we value at HK$87.2bn

(HK$24.2/share) after an adjustment for a lower long-term investment return

assumption (3.5% vs. 5.5% currently). We value Taiping’s P&C business at

1.0x 2016E P/B and its reinsurance business at 1.0x 2016E P/B. The P&C

business accounts for 11% and reinsurance for 5% of our valuation.

Figure 26: Ch Taiping – valuation summary

2016E Total (HK$ m) Per share (HK$) Note

Adj. Life 87,205 24.2 1.2x P/EV, 1.2x Life P/EV

Reinsurance 6,703 1.86 1.0x P/B

P&C 13,465 3.74 1.0x P/B

Group 15,648 4.35 1.0x P/B

Total 123,020 34.2

Operational discount 10% 10%

Valuation 110,718 30.8 Source: Deutsche Bank estimates

20 June 2016

Insurance



CPIC – H (Buy; target price of HK$39.4/share)

CPIC – A (Buy; target price of Rmb35.4/share)

We value CPIC at Rmb321bn, which we base on a sum-of-the-parts valuation.

81% of our valuation for CPIC comes from its life insurance business, which

we value at Rmb259bn, with an adjustment for a lower long-term investment

return assumption. We value CPIC’s P&C business at 1.2x 2016E P/B (at a

conservative discount to its listed peers) and group capital at 1.0x 2016E P/B.

The P&C business accounts for 13% and the excess group capital for 6% of

our valuation.

Figure 27: CPIC – valuation summary

Rmb bn HK$ Rmb Note


Adj. Life 259.0 31.8 28.6 1.8x P/EV (Grp), 2.0x Life P/EV, 10.8x NBM

P&C 42.2 5.2 4.7 1.2x P/B

Group 19.3 2.4 2.1 1.0x P/B

Total 320.5 39.4 35.4 Source: Deutsche Bank estimates

NCI – H (Buy; target price of HK$36.2/share)

NCI – A (Hold; target price of Rmb32.5/share)

We value NCI’s life business at Rmb101.3bn based on appraisal value. We

calculate our appraisal value as the sum of the following:

Embedded value, which consists of adjusted net worth (ANW) of

Rmb49.3bn and in-force value of Rmb61.8bn.

The value of future new business, which we estimate by multiplying

our 2016 VNB forecast by an NB multiple of 6.5.

Both our EV and the value of future new business have been adjusted

for a lower long-term investment return assumption of 3.5%, vs. 5.5%

currently.

Figure 28: NCI – valuation summary

Rmb bn HK$ Rmb


Adjusted net worth 49.3 17.6 15.8

Value of in-force 61.8 22.1 19.8

EV 111.1 39.7 35.6

Adj. EV – (i) 85.2 30.4 27.3

VNB 8.1 2.7 2.4

Adj. VNB 2.5 0.9 0.8

NB multiple (x) 6.5

Value of future NB – (ii) 16.1 5.7 5.2

Appraisal value: (i) + (ii) 101.3 36.2 32.5

– Implied P/EV (x) 1.2 1.2 Source: Deutsche Bank estimates

20 June 2016

Insurance



Ping An – H (Buy; target price of HK$51.9/share)

Ping An – A (Buy; target price of Rmb46.6/share)

We value Ping An based on a sum-of-the-parts valuation and a 10% holding

company discount. 71% of our valuation for Ping An comes from its life

insurance business, which we value at Rmb670bn (adjusted for a lower long-

term investment return assumption). We value Ping An’s P&C business at 1.5x

P/B, its banking business, securities business and corporate and other

businesses (including trust) at 1.0x P/B. The P&C business accounts for 10%,

the banking business 11%, the corporate and other business 5%, and securities

for 3% of our valuation.

Figure 29: Ping An – valuation summary

Rmb bn HK$ Rmb

2016E Total Per share Per share Note

Life 670 40.8 36.7 1.5x P/EV (Group); 1.8x P/EV (Life);

10.8x NBM

P&C 99 6.0 5.4 1.5x P/B

Banking 105 6.4 5.7 1.0x P/B

Securities 26 1.6 1.4 1.0x P/B

Corporate & others 47 2.8 2.5 1.0x P/B

Total 947 57.7 51.8

Holding co. discount 10% 10% 10%

Valuation 852 51.9 46.6 Source: Deutsche Bank estimates

China Re (Hold; target price of HK$2.42/share)

We value China Re at Rmb92.3bn or HK$2.42 per share on 2016E, based on a

sum-of-the-parts valuation. We value P&C Re at Rmb29.6bn on a target P/B of

1.6x, we value the Life Re business at Rmb23.4bn, implying a 2016E life P/EV

of 1.5x, and we value the primary P&C business at Rmb9.8bn on a target P/B

of 0.9x. We price group and other business in at Rmb29.5bn on 1.0x target

P/B. The target price of HK$2.42/share implies a 2016E P/B of 1.3x and P/E of

16.7x.

Figure 30: China Re – valuation summary

2016E Rmb m HK$

Total Per share Note

P&C Re 29,639 0.78 1.6x P/B

Life Re 23,422 0.61 1.5x P/EV (Life)

P&C 9,812 0.26 0.9x P/B

Grp&others 29,455 0.77 1.0x P/B

Total 92,328 2.42

Source: Deutsche Bank estimates

20 June 2016

Insurance



Risks

China Life

Downside risks include further weakness in A-share markets, a continued

decline in interest rates, slower-than-expected product mix improvement and

VNB growth, and unfavorable regulatory changes.

Ping An

Besides downside risks in A-share markets and a continued decline in interest

rates, Ping An is also subject to regulatory and asset-quality risk in PAB, and

default risk and market sentiment in its trust business.

CPIC

Downside risks include weakness in A-share markets, a continued decline in

interest rates, slower-than-expected VNB growth of the life business, combined

ratio deterioration for the P&C business, and regulation risks.

NCI

Downside risks include problems with restructuring, further A-share market

weakness, a continued decline in interest rates, slower-than-expected VNB

growth recovery, and unfavorable regulatory changes. For NCI-A, upside risks

include a correction in share prices, and better-than-expected investment

returns and VNB growth.

Ch Taiping

Besides risks in equities markets, the interest rate environment and regulatory

changes, Ch Taiping is also subject to potential risks arising from its rapid

agency expansion and thus slower-than-expected VNB growth.

China Re

Investment risks include, but are not limited to, investment market volatility,

China’s political and economic risks, the potential high frequency of

catastrophic events, intensified competition in the reinsurance and insurance

industries, and a significant change in China Re’s profitability. Upside risks

include better-than-expected underwriting margins on the reinsurance and

primary P&C businesses, stronger-than-expected premium growth of

(re)insurance, and favorable changes in the regulatory environment.

20 June 2016

Insurance



Appendix 1

Important Disclosures

Additional information available upon request

*Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr

Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Esther Chwei

Equity rating key Equity rating dispersion and banking relationships

Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock.

Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock

Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell.

Newly issued research recommendations and target prices supersede previously published research.

54 %

36 %

11 %16 % 15 % 22 %

050

100150200250300350400450500

Buy Hold Sell

Asia-Pacific Universe

Companies Covered Cos. w/ Banking Relationship

Regulatory Disclosures

1.Important Additional Conflict Disclosures

Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the

"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.

2.Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are

consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the

SOLAR link at http://gm.db.com.

20 June 2016

Insurance



Additional Information

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"Deutsche Bank"). Though the information herein is believed to be reliable and has been obtained from public sources

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Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promise

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flows), increases in interest rates naturally lift the discount factors applied to the expected cash flows and thus cause a

loss. The longer the maturity of a certain cash flow and the higher the move in the discount factor, the higher will be the

loss. Upside surprises in inflation, fiscal funding needs, and FX depreciation rates are among the most common adverse

macroeconomic shocks to receivers. But counterparty exposure, issuer creditworthiness, client segmentation, regulation

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settlement issues related to local clearing houses are also important risk factors to be considered. The sensitivity of fixed

income instruments to macroeconomic shocks may be mitigated by indexing the contracted cash flows to inflation, to

FX depreciation, or to specified interest rates – these are common in emerging markets. It is important to note that the

index fixings may -- by construction -- lag or mis-measure the actual move in the underlying variables they are intended

to track. The choice of the proper fixing (or metric) is particularly important in swaps markets, where floating coupon

rates (i.e., coupons indexed to a typically short-dated interest rate reference index) are exchanged for fixed coupons. It is

also important to acknowledge that funding in a currency that differs from the currency in which coupons are

denominated carries FX risk. Naturally, options on swaps (swaptions) also bear the risks typical to options in addition to

the risks related to rates movements.

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Derivative transactions involve numerous risks including, among others, market, counterparty default and illiquidity risk.

The appropriateness or otherwise of these products for use by investors is dependent on the investors' own

circumstances including their tax position, their regulatory environment and the nature of their other assets and

liabilities, and as such, investors should take expert legal and financial advice before entering into any transaction similar

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be substantial. As a result of the high degree of leverage obtainable in futures and options trading, losses may be

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website please contact your Deutsche Bank representative for a copy of this important document.

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exchange controls which could affect the value of the currency. Investors in securities such as ADRs, whose values are

affected by the currency of an underlying security, effectively assume currency risk.

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20 June 2016

Insurance



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Copyright © 2016 Deutsche Bank AG

David Folkerts-Landau Group Chief Economist and Global Head of Research

Raj Hindocha Global Chief Operating Officer

Research

Michael Spencer Head of APAC Research

Global Head of Economics

Steve Pollard Head of Americas Research

Global Head of Equity Research

Anthony Klarman Global Head of Debt Research

Paul Reynolds Head of EMEA

Equity Research

Dave Clark Head of APAC

Equity Research

Pam Finelli Global Head of

Equity Derivatives Research

Andreas Neubauer Head of Research - Germany

Stuart Kirk Head of Thematic Research

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