Strong Growth in Insurance Liabilities

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At the start of 2024, the insurance industry in China continues its narrative of robust growth, particularly in terms of net business value (NBV). This trajectory of high-quality growth reflects a strategic pivot among insurance companies, which has been designed to align with changing market dynamics and regulatory expectationsNotably, companies have actively adjusted their product strategies and improved cost efficiencies, ultimately enhancing their overall value propositions in the marketplaceThe overall increase in the value generated can be attributed to deliberate measures aimed at lowering costs and maximizing efficiency through product innovation and structural adjustments.

During the first quarter of this year, five publicly listed insurance companies reported a joint decline in net profit attributed to the parent company, clocking in at approximately 13.5% when compared year-on-yearSpecifically, firms such as Ping An, China Life, and China Pacific Life Insurance showed varied performance results, with net profit fluctuations reported as -4%, -25%, and 1%, respectivelyThe root causes of the profit decline are multifaceted, largely hinging on the performance of the equity market, which was somewhat subdued compared to 2023. This led to a lower total investment return for most companiesAdditionally, a drop in underwriting performance has also had a considerable impact on profitability, where elevated claims within China Life contributed to increased service costs linked to insurance policies.

Delving deeper into the life insurance segment, there has been a clear optimization in payment structures combined with the unification of products in bank-insurance channels which has rejuvenated the margins, subsequently driving increased growth in NBVOverall comparisons in terms of NBV growth reveal impressive numbers: a staggering 81.6% growth for New China Life and 51% for China Life

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These figures illustrate that while the pace of new premiums has moderated, the share of periodic premiums has notably improved, suggesting a sustainable approach to future profitability.

The individual agency channel further substantiates this growth narrativeMajor players like China Pacific and New China Life have shown remarkable increases in new business sales, which rose by 31% and 18% year-on-year respectivelyRising demand for personal savings and the long-term value retention characteristics of insurance products have spurred companies to ramp up their offerings of long-term premium payment products, leading to an anticipated enhancement in payment structures across the market.

Meanwhile, the quality of agency personnel remains a focal pointDespite a slight decline in overall numbers of agents at companies like China Life and Ping An, the effectiveness and productivity of high-performing agents have steadily increasedThis is evident as average monthly first-year premium income has surged, highlighting the gains from investing in agent training and support systemsComparatively, Ping An has demonstrated a 56.4% year-on-year growth in per capita NBV.

The performance indicator of net profits has shown mixed results across the industry, revealing disparities influenced by investment outcomesAs such, while certain firms have experienced setbacks, the overall net profit growth outpaces expectations, indicating resilience within the sectorThe first quarter of 2024 has seen varying growth rates in insurance premium income, with some companies, such as China Pacific Insurance, achieving positive growth amidst investment pressures.

Nonetheless, as we transition through the year, the overall landscape appears poised for a gradual recovery thanks to favorable structural changes that enhance both the underwriting performance and the appetite for insurance products among consumers

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The migration towards high-quality risk management, coupled with proactive regulatory measures, is expected to bolster the sector's sustainabilityBy focusing on nurturing the growth of high-quality savings products and optimizing their risk frameworks, insurers position themselves to navigate the intrinsic challenges of the investing climate more effectively.

Amid the prevailing market uncertainties tied to fluctuating equity markets, the first quarter's investment returns did reflect a downward trend year-on-yearAs equity market volatility persists, the total investment income for most insurers has collectively experienced a declineHowever, one should recognize the disparate impacts across individual firms, with some performing far better than others based on strategic asset allocation and risk exposure management.

The quarterly performance reports from leading insurance companies depict a generally improved scenario when juxtaposed against lower market expectations from previous periodsAdjusting for new regulatory guidelines, the net profit figures reflect a slight drop but remain above earlier pessimistic forecasts, underscoring the robustness of operational strategiesAs of the end of the first quarter, average net assets for listed insurers had seen a marginal increase, highlighting a slow but steady recovery in financial stability.

Furthermore, market analysts have deduced that favorable conditions may soon arise as the regulatory aim to lower borrowing costs and enhance liquidity within the real estate sector could provide additional uplift for insurance stocksThe anticipation of a softening monetary policy combined with positively trending macroeconomic data is expected to realign risk perceptions in the short to medium term, offering a window of opportunity for enhanced insurance ownership and premium growth.

Another noteworthy aspect concerns the continuous improvement of margins driven by strategic adjustments to product rates and cost structures

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