For the first time, Chinese Life has joined hands with peers to do private placement

For the first time, Chinese Life has joined hands with peers to do private placement

Insurance leader Chinese Life (601628.SH) caught the market off guard with a third-quarter report with almost zero profits.

Recently, Chinese Life (hereinafter referred to as "China Life") disclosed its performance report for the third quarter of 2023: the company's net profit attributable to the parent fell by 99% to 53 million yuan in the quarter. The next day, China Life A-shares, with a market value of nearly one trillion yuan, fell lower after the opening, once fell more than 6%, and finally closed down 1.33%.

A number of brokerage research reports pointed out that the lower-than-expected performance was due to the impairment dragging down the short-term performance, and most of them still sang the value of China Life to maintain positive growth in 2024. But the market is not buying it. In the following nearly a month, China Life's share price continued to fall, fluctuating around 30 yuan per share at the end of November, down about 30% from the high of 42 yuan in mid-May.

How will Chinese Life, whose premium growth fluctuates, investment returns plummet, and whose assets are moving towards the 6 trillion yuan mark, face the "double problem"?

The pain of the reform on the premium side is coming to an end

As a leader in the insurance industry, China Life's huge size is reflected in many aspects.

The most intuitive indicator is market capitalization. Compared with the industry, among the top five listed insurance companies in the A-share market, China Life has a market value of nearly 900 billion yuan, which is in the first echelon with Ping An of China (601318.SH), much higher than the market value of the second echelon of China Pacific Insurance and Chinese Insurance of around 230 billion yuan.

In terms of life insurance premium income, China Life's leading edge is more solid. In the first ten months of 2023, the company's life insurance premium income will be nearly 600 billion yuan, exceeding the second place by 200 billion yuan.

For the first time, Chinese Life has joined hands with peers to do private placement

The growth of China Life's premiums has fluctuated in recent years. In the first ten months of 2023, the cumulative growth rate of China Life's premium income reached 4.1% - but it is one-sided and arbitrary to assert that China Life's premium growth is gratifying based on this figure alone.

From the perspective of BT Financial Data, China Life's premium income has slowed down since 2021, and fell into a year-on-year decline in 2022, and will not return to the growth channel until 2023. The chart below shows that in the past two years, the scale of China Life's premium income has stagnated.

For the first time, Chinese Life has joined hands with peers to do private placement

The deeper reason for this fluctuation is that the reform of marketing agents that has swept through the industry has brought "transformation pains" to insurance companies.

As of the end of the third quarter of 2023, China Life had 720,000 marketing personnel, down 9,000 from the beginning of the year. According to a research report by China Post Securities, compared with the average annual reduction of hundreds of thousands of employees in the previous three years, the current reform of China Life's marketing agents has come to an end, and the scale of personnel has stabilized. From the data curve in the figure below, it can be seen that the reform has been drastic in the past two years. However, the answer to whether such reforms can unleash long-term performance growth momentum remains to be verified by time.

For the first time, Chinese Life has joined hands with peers to do private placement

In terms of new business value (NBV), a key indicator to measure the quality of life insurance development, China Life has also shown signs of slowing growth. In the first three quarters of 2023, China Life's NBV increased by 14% year-on-year, slowing down from 19.9% in the first half of the year. Essence Securities believes that this is mainly due to the impact of factors such as product switching and demand release, which is in line with market expectations. 

BT Financial Data Connect compared China Life's competitors sideways and found that its NBV growth rate was slow in the industry. During the same period, the NBV of Ping An Life and Health Insurance increased by 40.9% year-on-year, and the NBV of CPIC Life increased by 36.8%, both of which grew significantly faster than China Life. Although the volume lead of China Life's "Big Mac" is still difficult to shake, the faster growth rate of the chasers is obviously not good news for China Life.

To the relief of China Life, the market size of life insurance will continue to grow in the foreseeable future, and Allianz Insurance Group's "Allianz Global Insurance Industry Development Report 2023" also predicts that the Chinese market will also become a bright spot in the industry growth in the next decade.

However, with the increasingly fierce competition on the premium side, the integration of new technologies such as artificial intelligence into the industry, and the emergence of new companies such as Internet insurance, China Life must not take its leading position lightly.

The income on the investment side has risen again

At a time when premiums fluctuate and grow, China Life's total assets and total investment assets are both moving towards the 6 trillion yuan mark.

As of the end of the third quarter of 2023, China Life's total assets reached 5.76 trillion yuan, and its investment assets also exceeded 5.5 trillion yuan. At the same time, the giant company is still stepping on the gas. BT Financial Data Connect found that the growth rate of China Life's total assets only slowed down in 2022, and returned to a high growth rate of more than 12% in the first three quarters of 2023, accelerating towards the 6 trillion yuan mark.

For the first time, Chinese Life has joined hands with peers to do private placement

It is also the volatility of the investment side that puts pressure on China Life's performance. According to the data of the third quarterly report, in the first three quarters of 2023, China Life's revenue recorded 709.3 billion yuan, up 1.2% year-on-year, and the net profit attributable to the parent company recorded a total of 16.2 billion yuan, a year-on-year decrease of 47.8% - there was a phenomenon of increasing revenue but not increasing profits.

The problem lies on the investment side. During the reporting period, due to the poor performance of equity markets such as A-shares, China Life's total investment income was 110 billion yuan, a sharp decrease of 23% year-on-year. The total investment return and net investment return fell by 1.2 percentage points and 0.3 percentage points to 2.8% and 3.8%, respectively.

At present, less than 20% of China Life's assets are invested in equity assets. Judging from the previously disclosed more detailed semi-annual report data, China Life's equity financial assets accounted for 18.02%, an increase of 0.43 percentage points from the end of 2022, and stocks accounted for nearly half of them.

Another caliber of "equity investment ratio (including long-term stock investment)" shows that as of mid-2023, the equity investment ratio (including long-term stock investment) of China Life, Ping An, CPIC, and Xinhua Insurance is 21.9%, 19.1%, 16.5%, and 19.2% respectively - China Life is the highest among them, and its risk appetite can also be seen. It is worth noting that China Life still has room to "increase its position", and the corresponding equity investment ratio is currently capped at 30%.

Looking at the financial data, the "net amount of profit and loss included in OCI (other comprehensive income) in the previous period" dragged down the company's asset impairment in the first three quarters to 32.6 billion yuan compared with the first half of the year, which was an important factor that dragged down the company's single-quarter net profit in the third quarter to 53 million yuan.

Many institutions believe that the sluggish investment income of China Life will only be a short-term effect, and China Post Securities expects that the investment return of China Life may return to the normal level of 4-5% from the end of 2023 to the beginning of 2024. However, judging from the trend of A-shares, this outlook is too optimistic. Looking at the trend of large-capitalization companies that insurance capital likes to group through the CSI 300, it can be found that the index has fallen from 3,690 points at the end of September to below 3,500 points at the end of November.

"Changjiang Business Daily" and other media also found that in the first three quarters of this year, China Life's total investment return of 2.81% hit the lowest level in nearly a decade.

In addition to the volatility of equity markets such as A-shares, there are two other major problems facing insurance companies: the decline in market interest rates and the intensification of "asset shortage". Especially in the third quarter of 2023, the decline in interest rates has led to the double killing of stocks and bonds, and the investment income of insurance funds will inevitably be under pressure.

The whole industry is under pressure, and China Life is not the best one. Compared with Ping An, which is similar to China Life, the net investment return disclosed by China Life in the first three quarters was 3.8%, and the annualized net investment return of Ping An was 4% in the same period, which was slightly better.

BT Financial Data Communication also noticed that in recent years, insurance companies with strong capital strength have mostly deployed in pension communities, especially in the construction and operation of pension communities with a heavy asset model. In this direction, Chinese life is also constantly falling.

In terms of structural arrangement, it is worth noting that industrial and commercial information shows that the capital layout of China Life in the pension track is mostly structured at the group level, rather than directly placed under the listed company.

Specifically, taking China Life Health Industry Investment Co., Ltd., the project party of "China Life Jiayuan Xiamen Paradise" that laid the foundation stone on May 27, as an example, Tianyancha data shows that the company is indirectly wholly owned by Chinese Life Insurance (Group) Company, and the equity relationship is not directly related to the listed entity Chinese Life Insurance Co., Ltd.

In the future, whether this part of the investment income can be directly contributed to the financial statements of listed companies, and whether pension and health care can effectively promote the growth of insurance policies? The answers to these key questions still need to be observed for a long time.

What will the new management do?

Since 2023, there have been several personnel changes in the management of Chinese Life. Where will the new helm team lead nearly 6 trillion yuan to the country?

In the fourth quarter of 2022, Chinese Life announced that Huang Xiumei submitted to the board of directors to resign as the head of finance, and disclosed that the successor was Hu Jin, whose qualifications had been approved by the then CBIRC in early 2023. At the same time, Huang Xiumei was also approved by the former China Banking and Insurance Regulatory Commission, and she has now obtained the qualifications of director and general manager of China Life Property and Casualty Insurance.

Also in the first half of 2023, Liu Hui took over from Zhang Di as the vice president in charge of investment at China Life;

In August, Li Mingguang, a "veteran" of China Life, was appointed as the Secretary of the Party Committee of China Life. In mid-November, China Life announced that it had received the approval of the State Administration of Financial Supervision on Li Mingguang's qualifications and had approved him to serve as the company's president.

Li Mingguang once said at the China Life 2023 Open Day event that the industry is still in a period of major strategic opportunities, with significant increases in the uncertainty and complexity of the external environment, and the industry has entered a "period of transformation, structural adjustment, and policy digestion".

In the face of new challenges, how does China Life achieve "elephant turn"?

Li Mingguang once emphasized "strong foundation" and "excellent service", using the former to enhance the company's internal development force, and the latter to highlight the essential characteristics of insurance services, and building high-quality services into a new growth point. In terms of specific directions, the new management team has also revealed that China Life will release a "seed plan" to pilot a new marketing model, and use "adhere to long-termism, adhere to customer-centricity, adhere to market-oriented operation, and adhere to rolling development" to lay out the pension industry, looking forward to bringing diversified value in terms of individual project portfolio and investment allocation in this field.

"Big Brother" takes the lead in private equity funds

On November 29, another big news that shook the entire insurance industry and investment market was that China Life, the "big brother" of the industry, planned to join forces with another leading insurance company, Xinhua Insurance, to jointly set up a private equity fund with a scale of 50 billion yuan.

At a time when the performance of the equity market is sluggish, the strong alliance of two large state-owned commercial insurance companies has boosted market confidence.

The announcements of the two companies have pieced together the complete picture of this new securities private equity fund for investors. Xinhua Insurance (601336.SH) announced that Xinhua and China Life each invested 25 billion yuan to jointly launch a fund tentatively named "Honghu Private Securities Investment Fund Co., Ltd." China Life said that the two companies will each invest 5 million yuan to set up a limited liability company and serve as the manager of the private equity company.

According to public reports, the term of the fund is "10+N years", that is, after the expiration of the 10-year period, it can be extended by changing the filing, or withdrawn after consultation between the two parties.

BT Financial Data Communication observed that the "insurance-based" private equity fund actually started the pilot in 2015. In November 2022, according to historical reports such as Shanghai Securities News, the private equity fund invested by Chinese Life was officially established at that time. Tianyancha data shows that the name "Beijing Huayu Fengguang Equity Investment Fund Partnership (Limited Partnership)" was established on November 24, 2022, with a registered capital of up to 10 billion yuan, and the executive partner is Beijing Shuangcheng Fuxiang Enterprise Management Co., Ltd.

The above-mentioned fund jointly established by China Life and New China Insurance will invest in the stocks of high-quality listed companies. China Life said that the fund intends to invest in high-quality listed company stocks with good corporate governance and stable operations. At the same time, in order to match and adapt to the long-term, large-scale and high-stability characteristics of insurance funds, the joint fund will reduce the volatility of returns by selecting investment targets and fund structure design.

The joint venture between China Life and Xinhua is the first time in the industry that two large insurance companies have established a private securities investment fund. In this regard, China Life revealed its vision: giving full play to the investment advantages of both parties and alleviating the pressure of asset allocation is an innovation and attempt to further improve asset and liability management and optimize long-term investment methods.

This time, China Life continued to increase its investment in the equity market in the form of private equity funds, which inevitably reminded the market of the erosion of China Life's profits caused by the fluctuations in equity investment in the first three quarters. What will be the increase in China Life's performance this time?

The answer is unknown, but holding back and choking on food is clearly not the answer to the challenge. In the midst of market fluctuations, the "big brother" of 6 trillion China Life carries not only the pressure of its own growth, but also the expectations of investors for its breakthrough as a leading leader in the whole industry.

作 者 | Have

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