Article/Opinion Leader Columnist Xue Hongyan
Since April 24, A shares have started a new round of upward cycle, breaking through the platform of consolidation for two months and standing at 3100 points. In this round of market, the real estate market rose in the first fault pattern, and the real estate chain plate such as building materials rose higher.
In terms of 124 Shenwan secondary industries, from April 24 to May 22, real estate services (55.23%), real estate development (27.15), decoration and building materials (20%), insurance (15%), animal health care, household goods and other sectors led the rise. Except for animal health, which benefited from the recovery of the pig cycle, other sectors led the rise to varying degrees from the bottoming logic of real estate.
Among them, What's the logic behind such a good performance of the insurance sector? Is there more room for further growth?
Since 2020, the A-share insurance sector and the real estate development sector have shown a highly consistent trend: the fluctuation process is highly positive, and the cumulative decline is about 45%. Why does real estate have such an obvious impact on the insurance sector?
From the perspective of direct impact, insurance companies hold a large number of property stocks on the asset side. Although the proportion of positions is not high, the insurance sector always falls when the risk of the real estate sector ferments.
When it comes to insurance holdings, the market always takes Ping An, China For example. According to financial report data, at the end of 2020, Ping An held Chinese happiness The book value of equity of real estate companies such as Xuhui, China Jinmao and Shanghai Yibin Real Estate totaled 49.857 billion yuan, accounting for 22.63% of their long-term equity investment. In addition to direct shareholding, its asset management companies and trust companies also hold a large number of real estate assets.
In hindsight, insurance companies' massive ownership of real estate equity made insurance investors beat their chests. In fact, it was all "hindsight" in the rearview mirror. Before 2021, real estate has experienced a bull market for more than 20 years. For insurance companies that pay attention to long-term allocation, the allocation of real estate assets is a rational choice and has also achieved good historical returns. The profits and losses are the same source. When the real estate cycle suddenly goes down, small retail investors can clear their positions within one day. The second largest shareholder cannot escape. Insurance companies can only resist.
The impact of real estate on insurance shares is far more than that, and the indirect impact is much greater.
Nearly 70% of the wealth of Chinese households is allocated to real estate. The decline of housing prices has led to the decline of residents' wealth, which directly affects the enthusiasm of residents to purchase insurance policies. In addition, the real estate downturn has dragged down economic growth, indirectly affected employment stability, income growth, consumer confidence, etc., and also had a negative impact on policy sales. However, the economic downturn has led to the decline of long-term interest rates, narrowing of interest margin of historical insurance contracts of insurance companies and even loss of interest margin. The contract value has shrunk significantly, bringing huge pressure on the provision of reserves.
All of the above have caused a significant drag on the fundamentals of insurance companies due to the decline of real estate. On the contrary, Once the real estate is stabilized, it will also be a major benefit to the insurance company.
A round of continuous market is inseparable from fundamental support. From the perspective of fundamentals, the growth rate of premium income of insurance companies in China has reached the bottom in January 2022, and will rise significantly in 2023. At the annual level, from 2020 to 2023, the growth rate of premium income will be 6.13%, -0.79%, 4.58% and 9.13% respectively; From January to March 2024, the premium income increased by 10.73% year on year, maintaining a positive trend.
Logically, the reversal of premium growth should lead to a reversal of stock prices. In fact, the insurance sector has been repeatedly bottoming out, and there has not been a reversal of the market, because of the drag on the investment side (real estate and long-term interest rate decline). In the past few years, the real estate industry has declined, the long-term interest rate has declined, the life insurance companies have continued to have bad news on the investment side, and the debt side has reversed to the bottom. It is good to support the stock price to stop falling.
At present, the real estate expectation has hit the bottom, and the long-term interest rate has finally shown signs of stopping falling. On May 17, the Ministry of Finance issued the first phase of ultra long term special treasury bonds of 40 billion yuan, with a coupon rate of 2.57%, in line with market expectations. Next, the remaining amount will be issued in succession. On the one hand, it can meet the demand of insurance funds for long-term assets. On the other hand, the increase in bond supply is expected to drive the long-term interest rate to stabilize.
So far, The insurance sector is expected to usher in the resonance between the investment side and the liability side, and probably usher in a round of continuous rising market 。
From April 15 to May 22, the insurance index rose by 21.87%; At the individual stock level, CPIC 、 Xinhua Insurance 、 China Life Ping An of China led the way, both exceeding 20%.
Benefiting from a more stable income statement under the new accounting standards, CPIC became the leader in the rise of the insurance sector this round. In 2024Q1, the growth rate of net profit attributable to parent company of CPIC, Ping An Insurance, China Life Insurance and Xinhua Insurance was 1.14%, -4.28%, -9.34% and -28.55% respectively, and CPIC performed best. In April 2024, the premium growth rate of life insurance companies will be 23.6% for PICC Life Insurance, 12.3% for CPIC Life Insurance, 11.6% for China Life Insurance, 6.3% for China Ping An Insurance and 11.6% for Xinhua Insurance. CPIC also performs well.
Next, as the real estate market spreads to the real estate chain, the insurance sector may take off!
Note: Profile of A-share representative insurance company
1、 Ping An, China : Full license financial leader, life insurance and property insurance rank second in China. In recent years, we have actively laid out the medical and old-age care ecology, committed to becoming an international leading comprehensive financial and medical elderly care service provider, with the help of Ping An Life Insurance, Ping An Property Insurance, Ping An Pension Insurance, Ping An Health Insurance Ping An Bank , Ping An Trust, Ping An Securities, Ping An Asset Management, Ping An Financial Leasing and other subsidiaries operate financial businesses, and provide customers with a variety of financial products and services by operating technology businesses with the help of member companies such as Autohome, Lufax, OneConnect, Ping An Health, etc. From 2018 to 2023, the compound annual growth of operating revenue will be -1.33%. In 2023, the company will achieve operating profit attributable to the parent of 117.989 billion yuan (net profit of 85.665 billion yuan), including 106.083 billion yuan for life insurance and health insurance business, 26.925 billion yuan for banking business, 8.958 billion yuan for property insurance business, and 20.747 billion yuan for asset management losses.
2、 China Life : Leading domestic life insurance company, ranking first in life insurance business in China. By the end of 2023, the company's investment scale was 5.67 trillion yuan (4.72 trillion yuan for Ping An), ranking first in the industry, of which equity assets accounted for 19.37%. As a pure life insurance target of A-share, and with a very small free circulation market value (only about 49 billion, about 420 billion for Ping An, and about 100 billion for CPIC), China Life has a better flexibility in the insurance market driven by the investment side. From 2018 to 2023, the annual compound growth of operating revenue will be 5.43%; In 2023, the net profit attributable to the parent company will be 21.11 billion yuan.
3、 CPIC : Leading domestic insurance industry, life insurance and property insurance rank third in China. The company focuses on the main business of insurance, through CPIC Life Insurance, CPIC Property Insurance the pacific ocean Anxin Agricultural Insurance and Pacific Health Insurance provide customers with various insurance businesses; Carry out various asset management businesses through CPIC Asset Management, Changjiang Pension, CPIC Capital, Guolian An Fund, etc. From 2018 to 2023, the company's operating income will grow by - 1.78% annually; In 2023, the operating profit attributable to the parent company will be 35.518 billion yuan (net profit 27.257 billion yuan), of which the operating profit of life insurance will be 27.257 billion yuan and the net profit of property insurance will be 6.575 billion yuan.
[Note: There are risks in the market, so investment should be cautious. In any case, the information or opinions contained herein are only for exchange of views, and do not constitute investment advice for anyone.]
(The author of this article introduces: the vice president of Xingtu Financial Research Institute, and the master's supervisor.)
