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Comparing China's Largest Insurers (Part 2)

In this series, we compare six of China's largest, publicly-listed insurance companies:

  • China Life Insurance (中国人寿)

  • China Pacific Insurance (CPIC)(中国太平洋人寿)

  • China Taiping Insurance (中国太平保险)

  • New China Life Insurance (新华保险)

  • People's Insurance Company of China (PICC)(中国人民保险)

  • Ping An (中国平安)

In Part 1, we introduced the history and development of China's insurance industry and the six insurers under consideration. In this article, we compare the six insurers based on various financial and business metrics, and conclude by discussing the future of China's insurance industry.

 

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Financial Overview

In this section, we provide a financial overview of the six insurance companies.


Company Level Analysis


We first compare the insurers based on company-level metrics.


Note: since Ping An derives a sizable proportion of its revenues and profits from non-insurance businesses, we report two metric variations for the company: Ping An (All), the reported company-level metric which considers all of Ping An's businesses, and Ping An (I+A), which considers only Ping An's insurance and asset management businesses and is thus relatively more comparable with the reported metrics by other insurers. Ping An only started reporting a separate asset management segment in 2017 with retrospective data stated for 2016, and management is unclear about which items were recorded under what segments prior to the new 2017 segmentation approach. Consequently, we consider only Ping An's insurance businesses (and ignore the asset management business) for the Ping An (I+A) metric from 2013 to 2015, which may impact the financial comparison results with other companies for these three years.


Note: China Taiping's reporting currency is in Hong Kong Dollars. To make the company comparable with its peers, we translate the Hong Kong Dollar accounting items into Renminbi using the prevailing exchange rate at the end of each financial reporting period.


#1: Ping An Is The Leader In Terms Of Revenue, Followed By China Life And PICC

Ping An (All) had the highest total revenue every year over the past decade. Excluding Ping An (All), China Life had the highest total revenue from 2013 to 2015, before being overtaken by Ping An (I+A) from 2016 onwards. PICC had the second highest total revenue in 2013 and the third highest total revenue from 2014 to 2022. China Pacific had the fourth highest total revenue each year, while New China Life had the fifth highest revenue from 2013 to 2015, before being overtaken by China Taiping.


China Insurers - Total Revenue
Data Sources: Company Annual Reports (click image to enlarge)

Note: unlike the other five insurers, Ping An (I+A)'s reported total revenue includes the company's Share of Profits and Losses of Associates and Joint Ventures. Other insurers only included this accounting item in their reported net income metrics but not total revenue metrics. However, the Share of Profits and Losses of Associates and Joint Ventures reported is relatively negligible for comparison purposes, as they only accounted for less than 2% of Ping An (I+A)'s revenue each year.



#2: Ping An Has The Highest Net Premiums Written and Net Premiums Earned, Followed By China Life And PICC

Rather unsurprisingly, net premiums written (NPW) and net premiums earned (NPE) follow a similar trend as total revenue, with China Life having the highest NPW and NPE from 2013 to 2015, before being overtaken by Ping An in 2016. PICC had the second highest NPW and NPE in 2013 and 2014, and the third highest NPW and NPE from 2015 onwards. China Pacific had the fourth highest NPW and NPE across the decade, while New China Life had the fifth highest NPW and NPE from 2013 to 2015, before being overtaken by China Taiping.


China Insurers - Net Premiums Written
Data Sources: Company Annual Reports (click image to enlarge)

Note: we only report one metric for Ping An since net premiums written are only generated by the company's insurance businesses


China Insurers - Net Premiums Earned
Data Sources: Company Annual Reports (click image to enlarge)

Note: we only report one metric for Ping An since net premiums earned are only generated from the company's insurance businesses



#3: Ping An Is The Most Profitable Insurer Overall

Ping An (All) had the highest net profit margin, ranging from 8.5% to 12.9% over the past decade. Excluding Ping An (All), Ping An (I+A) had the highest net profit margin from 2016 to 2022 due to relatively lower total expenses as a percentage of revenue compared with other insurers. In general, there is a substantial degree of variation in net profit margin across the companies each year without any clear drivers or trends.


China Insurers - Net Income
Data Sources: Company Annual Reports (click image to enlarge)

China Insurers - Net Profit Margin
Data Sources: Company Annual Reports (click image to enlarge)


#4: There Are No Consistent Under- Or Out-Performers In Total Investment Yield

Next, we compare the total investment yield reported by each insurer. The definition of total investment yield may differ slightly from company to company. As shown below, each insurer's total investment yield fluctuated from year to year without any particular indication as to the existence of a consistent outperformer or underperformer. However, Ping An's yield seems to be somewhat more volatile than its peers, with noticeable outperformance in certain years and substantial underperformance in other years. New China Life and PICC seem to have relatively less volatile total investment yields.


China Insurers - Total Investment Yield
Data Sources: Company Annual Reports (click image to enlarge)

Note: we only include one metric for Ping An since the total investment yield refers specifically to the company's total investment yield for its insurance funds



Segment Analysis


We turn to compare each insurer based on their revenue breakdown by segment.


#1: China Life Primarily Generates Revenue From Life Insurance With A Small Mix Of Health Insurance

China Life reports four operating segments:

  • Life Insurance

  • Health Insurance

  • Accident Insurance

  • Others - includes an agency business, share of profit of associates and joint ventures, income and expenses of subsidiaries, and unallocated income and expenditure for the company

Excluding inter-segment eliminations, China Life generated 80% to 90% of its total revenue from the provision of Life Insurance, with some supplementary revenue generation from Health Insurance. The Accident Insurance segment contributed a very small amount to the company's total revenue. Interestingly, excluding inter-segment eliminations, the share of Health Insurance as a percentage of total revenue grew from 6.2% in 2013 to 15.4% in 2021, while the share of Accident Insurance remained relatively constant at approximately 2% to 3% of total revenue throughout the past decade.


China Life Revenue Breakdown By Segment
Data Sources: Company Annual Reports (click image to enlarge)

Note: the reported figures do not take into account inter-segment eliminations



#2: China Pacific's Total Revenue Is A Mix of L&H Insurance And P&C Insurance

China Pacific reports three operating segments:

  • Life and Health (L&H) Insurance

  • Property and Casualty (P&C) Insurance

  • Corporate and Others - includes management services (e.g. investment contract fees) and asset management services


China Pacific generates between 60% to 70% of its total revenue from Life and Health Insurance, and 30% to 37% of its total revenue from Property and Casualty Insurance, before taking inter-segment eliminations into account.


China Pacific Revenue Breakdown By Segment
Data Sources: Company Annual Reports (click image to enlarge)

Note: the reported figures do not take into account inter-segment eliminations

Note: in 2022, China Pacific changed its financial reporting standard from the Hong Kong Financial Reporting Standards to the China Accounting Standards for Business Enterprises. Consequently, reported 2022 figures may not be completely comparable with those from previous years.



#3: China Taiping's Revenues Are Driven By Life Insurance and Domestic P&C Insurance

China Taiping has six operating segments for financial reporting purposes:

  • Life Insurance - active in mainland China, Hong Kong, Macau, and Singapore

  • PRC Domestic Property and Casualty (P&C) Insurance - active in mainland China

  • Overseas Property and Casualty Insurance - active in Hong Kong, Macau, Singapore, Indonesia, and the UK

  • Reinsurance - active in mainland China and globally

  • Pension and Group Life Insurance - active in mainland China

  • Others - includes asset management services, insurance intermediary and broking services, financial leasing services, securities dealing, and property investment

Pension and Group Life Insurance was recorded under Others in 2013.


Excluding inter-segment eliminations, approximately 80% of China Taiping's total revenue is generated by Life Insurance each year, followed by PRC Domestic Property and Casualty Insurance at 10% and Reinsurance at 5%. Pension and Group Life Insurance and Others each contributed to approximately 3% of total revenue respectively. Overseas Property and Casualty Insurance only contributed 1% to 2% of total revenue each year, with a generally declining share of total revenue. According to management, 89% of China Taiping's 2022 total revenue was generated in mainland China.


China Taiping Revenue Breakdown By Segment
Data Sources: Company Annual Reports (click image to enlarge)

Note: the reported figures do not take into account inter-segment eliminations



#4: Almost All Of New China Life's Revenues Are From L&H Insurance

New China Life defines its operating segments based on whether the products and services sold target individuals or group entities, with a revenue breakdown for Individual Insurance, Group Insurance, and Others (an asset management business and unallocated income and expenses). Approximately 98% of the company's revenue is generated from Individual Insurance.


Management does not provide a revenue breakdown by insurance type (e.g. life or property and casualty), but does report gross premiums written based on product (i.e. participating, health, traditional, accident or universal insurance). Life and health insurance products are reported together under the participating and universal insurance categories.


We summarize New China Life's gross premiums written by insurance type as:

  • Life and Health (L&H) Insurance - includes participating, health, traditional, and universal insurance products

  • Accident Insurance - includes accident insurance products


As shown below, approximately 98% to 99% of New China Life's gross premiums written are for Life and Health Insurance.


New China Life Gross Premiums Written Breakdown By Insurance Type
Data Sources: Company Annual Reports (click image to enlarge)


#5: PICC's Total Revenue Is Primarily A Mix of P&C Insurance and Life Insurance

PICC has six operating segments:

  • Non-Life Insurance - primarily property and casualty (P&C) products offered by PICC Property and Casualty (中国人民财产保险)(HKEX: 2328)

  • Life Insurance

  • Health Insurance

  • Asset Management - refers to the company's asset management services

  • Headquarters - provides management and support for PICC's businesses through strategy, risk management, finance, legal and human resources functions

  • Others - includes an insurance agency and reinsurance businesses

Excluding segment eliminations, Non-Life Insurance generated 67% to 75% of total revenue each year. The share of Life Insurance as a percentage of total revenue decreased over the past decade from 30% in 2013 to 18% in 2022, while Health Insurance showed a slight increase during the COVID-19 pandemic years from an average level of 4% of total revenue prior to the pandemic years to 6% of total revenue during the pandemic. Asset Management contributed to less than 1% of total revenue annually, while Headquarters and Others each contributed between 1% to 2% of total revenue each year.


PICC Revenue Breakdown By Segment
Data Sources: Company Annual Reports (click image to enlarge)

Note: the reported figures do not take into account inter-segment eliminations



#6: 50% Of Ping An's Revenue Is From L&H Insurance, Followed by P&C Insurance (20%-24%) And Banking (18%-27%)

Since 2017, Ping An has a seven segment breakdown approach:

  • Life and Health (L&H) Insurance

  • Property and Casualty (P&C) Insurance

  • Banking - includes retail, corporate, and investment banking services, and trading and market-making activities under subsidiary Ping An Bank (平安银行)

  • Trust - includes traditional and financing trust services

  • Securities - provides brokerage, investment banking, asset management, and financial advisory services through subsidiary Ping An Securities (平安证券)

  • Other Asset Management - includes a financial leasing business and asset management services (88.2% of assets under management were Ping An's assets at the end of 2022)

  • Technology - includes healthtech business Ping An Health (平安健康)(HKEX: 1833), fintech businesses Lufax Holding (陆金所控股)(NYSE: LU), OneConnect (金融壹账通)(NYSE: OCFT)(HKEX: 6638), and automobile information platform Autohome (汽车之家)(NYSE: ATHM)(HKEX: 2518)


Data is presented retrospectively using the seven segment approach for 2016. Prior to 2017, Ping An did not have the Other Asset Management and Technology segments. Instead, the businesses under these two segments were recorded as part of the Trust and Securities segments, as well as another segment called Others. We present results below for the Life and Health Insurance, Property and Casualty Insurance, and Banking segments for all years from 2013 to 2022 as the definitions for these segments did not change across the decade. Results for the Trust and Securities segments are only presented from 2016 onwards based on the latest 2017 segmentation approach.


Excluding inter-segment eliminations, Life and Health Insurance generated 48% to 57% of total revenue each year, while Property and Casualty Insurance accounted for 20% to 24% of total revenue. Taken together, the two insurance segments comprised 69% to 77% of Ping An's total revenue annually, with Other Asset Management contributing another 3% to 5% of total revenue each year. The three insurance-related segments combined constituted 69% to 81% of Ping An's annual revenue over the past decade.


Banking is the next largest revenue driver which accounted for 18% to 27% of Ping An's total revenue, while the remaining segments are relatively minor revenue contributors. Specifically, Technology's share of total revenue gradually halved from 4% in 2016 and 2017 to only 2% in 2021 and 2022, whereas Securities' share of total revenue increased slightly from 1% during 2016 to 2018 to nearly 2% in the past couple of years. Finally, the Trust segment's share of total revenue gradually decreased from 0.7% of total revenue in 2016 to 0.2% of total revenue in 2022.


For a more detailed financial analysis of Ping An, see our Ping An series here.


Ping An Revenue Breakdown By Segment
Data Sources: Company Annual Reports (click image to enlarge)

Note: the reported figures do not take into account inter-segment eliminations


The Future of China's Insurers

In this section, we conclude with a discussion of the future of China's largest insurers.


#1: China's Insurance Industry Still Has Significant Room To Grow

Although China is the second largest economy in the world and is home to nearly 20% of the global population, research from Swiss Re (here) shows that China only accounted for 10.3% of the global insurance market based on premiums written in 2022, ranking second globally. In comparison, the US held a 43.7% market share the same year, leading as the world's largest insurance market. Additionally, according to The State Council of the People's Republic of China (中华人民共和国国务院)(see here), China's insurance penetration rate (defined as insurance premiums written as a percentage of the country's GDP) was 3.93% in at the end of 2021, compared with global average estimates of approximately 5.4% by Allianz (see here) and 7.0% by Atlas Magazine (see here) the same year. We believe there is significant room for China's insurance market to grow, and the country's insurers will likely benefit from this long run growth potential.


#2: China's Insurers Will Benefit From The Country's Rising Affluence, While Still Meeting The Needs Of The Rural Poor

We also think that China's rising income levels will be a key contributor to the insurance sector's future growth. China's average disposable income level grew eight-fold over the past 20 years from 2002 to 2022. With rising income income levels, more consumers may enter the insurance market, and each consumer may also spend more on insurance products per person. According to a 2022 Oliver Wyman survey (here), the middle class and affluent life insurance consumer segments in China are underserved, despite accounting for more than 75% of Chinese life insurance policyholders.


China Average Disposable Income
Data Source: National Bureau of Statistics of China

Total Gross Premiums Written In Mainland China
Data Sources: China Banking and Insurance Regulatory Committee/China Insurance Regulatory Committee

While developing products to target China's growing middle and upper classes, we anticipate that at least some state-owned insurers will still place a continued emphasis on meeting the needs of lower income and rural consumers as part of national strategies concerning poverty alleviation and common prosperity. For example, both PICC and China Life Insurance mention rural revitalization as a core strategy goal, with PICC launching a rural insurance product designed specifically to meet the needs of rural consumers, as well as a preferential insurance product launched specifically to target poverty alleviation


#3: China's Insurance Market Development Will Be Shaped By An Aging Population

China's increasing life expectancy and declining fertility rate make the country's population one of the fastest growing aging populations in the world, with the WHO predicting that 28% of the Chinese population will be 60 years old or above by 2040 (see here). Consequently, tackling the changes and challenges that come with an aging population has become part of China's national strategies, with Chinese insurance companies not only launching longevity insurance solutions and products targeted towards the elderly, but also developing supplementary businesses such as China Pacific Insurance's Pacific Care Home, an elderly care facility project scheduled to open in mid-2023.

 

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