Insurance shares are closely related to the real estate market, because real estate is an important part of the allocation of insurance funds. On May 17, the real estate policy was introduced intensively. On that day, the real estate index rose 6.16% and the insurance index rose 4.35%. Real estate investment, as one of the important directions of asset side allocation of insurance companies, has the characteristics of long duration, stable cash flow, etc., which match the property of insurance funds. However, in recent years, due to the frequent occurrence of real estate default risk events, a certain pressure has been exerted on the insurance asset side. With the release of good signals from real estate, the valuation of the insurance sector is expected to recover.
In order to explore the relationship between the real estate industry and insurance stocks, we conducted three reviews respectively in the period of tightening supervision, negative public opinion and the intensive issuance of favorable policies.
In the past, the supervision of the real estate industry was tightened. The performance of the real estate index and insurance index:
(1) "Three red lines" of real estate enterprises
On August 20, 2020, the Central Bank and the Ministry of Housing and Urban Rural Development, together with relevant departments, formed key real estate fund supervision and financing management rules (referred to as "new rules for real estate enterprise financing").
The main contents of the new regulation on financing of real estate enterprises: the asset liability ratio of real estate enterprises excluding advance receipts shall not be higher than 70%, the net debt ratio shall not be higher than 100%, and the cash short debt ratio shall not be less than 1. The market calls it "three red lines".
According to the touchline situation, real estate enterprises are divided into four grades of "red, orange, yellow and green", and the growth of interest bearing debt of real estate enterprises meeting different standards is restricted: all three red lines are touched, and interest bearing debt cannot be increased; Touching the second red line, the annual growth rate of interest bearing liabilities should not exceed 5%; Touching a red line, the annual growth rate of the scale of interest bearing liabilities should not exceed 10%; All of them are up to the standard, and the annual growth rate of interest bearing liabilities is not more than 15%.
On August 20, 2020, the property index fell 0.77% and the insurance index fell 0.89%.
During 2020/8/18-2020/8/27, the accumulated real estate index was -4.97%, and the insurance index was -6.41%.
(2) Centralized supervision of real estate loans
The Central Bank and the CBRC announced on December 31, 2020 that they would establish a management system for the concentration of real estate loans of banking financial institutions, and set the upper limit of the proportion of real estate loan balance and the upper limit of the proportion of individual housing loan balance in different grades.
According to the requirements of real estate loan concentration management, the upper limit of the proportion of real estate loan balance and the upper limit of the proportion of individual housing loan balance are divided into five grades: 40% and 32.5% for large Chinese funded banks, 27.5% and 20% for medium-sized Chinese funded banks, 22.5% and 17.5% for small Chinese funded banks and non county rural cooperative institutions, 17.5% and 12.5% for county rural cooperative institutions, Rural banks are 12.5% and 7.5% respectively.
On the next opening day, 2021/1/4, the property index fell 2.31% and the insurance index fell 1.84%.
During the period from December 3, 2020 to 2021/11, the accumulated property index was -11.69%, and the insurance index was -8.87%.
(3) Supervision of pre-sale funds
According to the relevant information of CCTV and Pengpai News in February 2022, at the end of January 2022, the Ministry of Housing and Urban Rural Development, the People's Bank of China and the CBRC jointly issued the official document on the supervision of pre-sale funds of commercial housing. The opinion clearly defines the supervision of pre-sale fund limit as "key limit supervision", which shall be determined by the urban and rural construction departments at the city and county levels according to the project cost contract and other factors to ensure the fund limit required for project completion. When the fund in the supervision account reaches the supervision limit, the fund exceeding the limit can be withdrawn and used by the real estate enterprise. The management measures define the basic standards for the supervision of pre-sale funds. The regulatory limit, payment scope and access conditions of regulatory funds were clarified.
The news may mainly come out after the 2nd/11th session. On the next opening day, the property index fell 3.60% and the insurance index fell 2.95%.
The impact of the recent negative public opinion of real estate on insurance shares:
(1) Country Garden vs China Ping An
On November 8, 2023, a news from the Internet triggered relevant public opinion. Ping An issued a clarification statement for the report on the same day.
It was mentioned in the statement that the company concerned about a news report released by Reuters that the company was required by relevant government departments/institutions to acquire Country Garden Holdings Co., Ltd. and inherit its debts. The company has never received any relevant suggestions and requirements from any relevant government departments/institutions, and the company has no transaction plans or discussions related to this.
Up to now, the company does not hold shares of Country Garden.
However, it may still be affected by negative public opinion. On November 8, 2023, China Ping An Hong Kong shares were -5.41%; A-share - 1.48%, and the following two days - 3.02%/- 2.15% respectively.
(2) Vanke vs CPIC and Xinhua Insurance
On March 3, 2024, Xinhua Asset released a public statement saying that recently, the company concerned about the false information about it and Vanke. Vanke Enterprise is a leading enterprise in China's real estate industry and has always maintained normal business cooperation with Xinhua Assets.
On March 11, 2024, according to the Economic Observer, since the end of February, the Chairman of Vanke's Board of Directors, Yu Liang, has gone to Beijing to discuss with several insurance companies, including Xinhua Assets, China Taiping Insurance, Taiping Insurance, and Dajia Insurance. The focus of the negotiation is not to "extend" the debt, but to hope that several insurance funds will not exercise their rights in advance and continue to perform the contract until the loan matures.
On March 15, 2024, CPIC answered investors' questions on Vanke, stock price fluctuations and other related issues on the investor interaction platform, pointing out that the current risk exposure in the company's real estate sector is relatively small, and the investment risk is controllable.
Affected by the negative public opinion, from the end of February 2024 to the first ten days of April, Taipao and Xinhua showed a downward trend.
Among them, Xinhua Insurance closed down 2.99% on February 26, 2024, and China Pacific Insurance closed down 3.48%; On March 3, 2024, Xinhua Insurance closed down 4.4%; On March 13, 2024, Xinhua Insurance closed 4.18% lower and China Pacific Insurance closed 7.10% lower.
The impact of the intensive period of favorable policies for real estate on insurance stocks since 2020:
(1) "Sixteen Articles of Finance"
On the evening of November 23, 2022, the Central Bank and the China Banking and Insurance Regulatory Commission jointly issued the Notice on Improving the Current Financial Support for the Steady and Healthy Development of the Real Estate Market (namely, the "Sixteen Financial Articles"), and then the real estate industry financing "three arrows" - corresponding to credit support tools, bond financing support tools, and equity financing tools respectively.
In this round of real estate market, the insurance index of 2022/11/24-2022/12/6 has increased by 12.52% accumulatively.
(2) A series of policies such as "house recognition without loan recognition"
In the middle and late July 2023, there will be frequent positive signs of real estate. On the evening of July 10, the Central Bank and the State Administration of Financial Supervision extended the two core financing policies of financial support for real estate in the "16 Articles of Finance" to help ensure the delivery of buildings; On July 24, the meeting of the Political Bureau of the Communist Party of China (CPC) made a judgment on "significant changes in the supply and demand relationship of the real estate market" and proposed "timely adjustment and optimization of real estate policies"; On July 27, the enterprise symposium of the Ministry of Housing and Urban Rural Development proposed to further implement policies and measures such as reducing the down payment ratio and loan interest rate for the purchase of the first house, reducing and remitting taxes and fees for the purchase of improved houses, and "no loan for house purchase" for personal housing loans; On July 31, the National Development and Reform Commission issued 20 measures to restore and expand consumption, which mentioned supporting rigid and improved housing demand.
In this round of real estate market, the insurance index of 2023/7/11-2023/8/3 has increased by 12.76%.
(3) A series of policies, such as down payment of housing loans to 15%
On May 17, 2024, the Central Bank will adjust the interest rate policy for commercial personal housing loans, and cancel the interest rate policy for commercial personal housing loans for the first and second homes nationwide; Since May 18, the interest rate of individual housing provident fund loan has been lowered by 0.25 percentage points; The Notice on the Policy of Adjusting the Minimum Down Payment Proportion of Personal Housing Loans issued by the State Administration of Financial Supervision shows that for households who purchase commercial housing with loans, the minimum down payment proportion of commercial personal housing loans for the first housing is adjusted to not less than 15%, and the minimum down payment proportion of commercial personal housing loans for the second housing is adjusted to not less than 25%; It is announced that it is planned to set up affordable housing refinancing, with a scale of 300 billion yuan, interest rate of 1.75%, a term of one year and four extensions.
On May 17, the insurance index rose 4.35%.
Investment suggestion: through the review, we can see that the tightening of the real estate industry supervision and negative public opinion in the past have led to the pressure on the valuation of the insurance sector. At the same time, the pressure on insurance stocks was released in the short term during the period of intensive real estate favorable policies, ushering in a phased rise.
However, it was also noted that the latest round of emotional game behavior was relatively obvious, and the real estate and insurance indexes fluctuated and declined slightly in the week after May 17. We believe that the effect of the real estate policy still needs time to verify, but the short-term positive signals can directly catalyze the market of the insurance sector, and it is necessary to continue to track the subsequent changes in the demand side of real estate and the transmission to the insurance sector. From the perspective of listed insurance companies, through the statistics and estimation of investment real estate, long-term equity investment and non-standard assets, it is estimated that the real estate exposure of listed insurance companies is: Ping An (4.80%)>Xinhua (3.92%)>Taibao (3.60%)>Guoshou (2.05%)>PICC (1.93%). If the subsequent real estate risks are significantly repaired, it is expected that priority will be given to Ping'an and Xinhua.
At present, China Taibao, which continues to recommend the continuous high growth of NBV+transformation benchmark+high dividend varieties, and China Life Insurance, which has a stable business strategy and less pressure on the liability side. Under the condition of rights and interests recovering, we are optimistic about the performance of flexible varieties in counter attack, and suggest paying attention to Xinhua; If the property is expected to improve, it is recommended to focus on Ping An. High dividends+leading position in the market share of 1/3+the level of risk management has steadily improved, and we still need to pay attention to the long-term investment value of China's property insurance.
Risk warning: long-term interest rate declines, regulatory policy changes, reform is less than expected, natural disasters intensify, and equity market fluctuations
