Three factors resonate with increasing reserves, declining investment income, and increasing compensation

  The total net profit of the four major insurance companies in the third quarter fell 39% year-on-year

  Our reporter Su Xianggao

  In the third quarter of this year, the performance of listed insurance companies disappointed investors again.

  As of the press release on October 29, among the five major A-share insurance companies, except for China Pacific Insurance which has not disclosed the three quarterly reports, the other four insurance companies have all disclosed.

Specifically, in the third quarter, Ping An, China Life, PICC, and Xinhua Insurance reported a year-on-year decline of 31.2%, 54.5%, 36.6%, and 51.2% in net profit attributable to the parent, and the total net profit attributable to the parent fell 39.1% year-on-year.

On the same day, insurance stocks fell sharply, and the share prices of three listed insurance companies including Xinhua Insurance all fell more than 5%.

  Looking back at the first half of this year, the net profit of listed insurance companies has seen rapid growth. Why did the third quarterly report performance suddenly change its face?

According to quarterly reports and analysis by managers of listed insurance companies, the main reason for the rapid increase in net profit of insurance companies in the first half of the year was due to the timely realization of part of the floating profits of equity investments; the decline in net profit of listed insurance companies in the third quarter was mainly due to the reserve discount rate Assuming updates, decline in investment income, and increase in compensation are related to the three major reasons, different listed insurance companies have different degrees of impact.

  The net profit of listed insurance companies has fallen sharply

  The three quarterly reports show that in the third quarter of this year, Ping An, China Life, PICC, and Xinhua Insurance’s net profits attributable to the parent were 23.6 billion yuan, 7.5 billion yuan, 3.9 billion yuan, and 1.4 billion yuan respectively, a year-on-year decline of more than 30%.

  Regarding the main reason for the decline in net profit, Ping An of China mentioned that it was “mainly affected by capital market fluctuations”; China Life said that it was caused by “renewal of the discount rate assumptions for traditional insurance reserves”; Other factors"; Xinhua Insurance is "mainly affected by changes in accounting estimates."

  On the whole, the increase in reserves, the decline in investment income, and the increase in compensation payments are the three main factors affecting the decline in the profits of insurance companies.

Among them, three insurance companies mentioned the impact of reserve funds.

  As life insurance contracts generally have a long term, especially critical illness insurance, traditional life insurance and other insurance types, which last for decades, insurance companies need to withdraw a portion of the insurance premiums to deal with claims, surrenders, and benefits. And other expenditures.

  The amount of reserves is assessed through actuarial insurance. The assessment is based on actuarial assumptions such as discount rate, mortality, morbidity, expenses, policy dividends, and surrender rates.

Since these assumptions will change based on factors such as life tables, investment income, etc., there will be corresponding changes in the provision of reserves.

  Taking Xinhua Insurance as an example, the third quarter report of this year shows that the company uses the current information available on the balance sheet date as the basis to determine actuarial assumptions including discount rate, mortality, and morbidity to measure various insurance contracts on the balance sheet date. Reserves. This change in accounting estimates increases the reserve for life insurance liabilities by 2.467 billion yuan, increases the reserve for long-term health insurance liabilities by 6.38 billion yuan, and reduces the total pre-tax profit of the first three quarters of 2021 by 8.847 billion yuan.

  In addition to the impact of the increase in reserves, the decline in investment and the increase in compensation will also have a negative impact on the net profit of listed insurance companies.

Ping An mentioned that the decline in net profit in the third quarter was "affected by fluctuations in the capital market." The decline in net profit in the first three quarters was mainly affected by the company's adjustments to China Fortune-related investment assets such as impairment.

The People's Insurance Company of China said that due to the increase in the auto insurance coverage rate and other reasons, the increase in compensation expenses has affected the company's net profit growth.

  Continued pressure on the debt and investment ends

  After understanding the main logic and influencing factors that determine the performance growth of insurance stocks, based on the current development status of listed insurance companies, it is possible to predict the growth rate of performance in the fourth quarter of this year and even next year. This is also one of the topics that investors are most concerned about with insurance stocks.

  However, from the perspective of listed insurance company executives and brokerage researchers, although insurance stocks have continued to decline this year, and the insurance index has fallen 37% during the year, the debt and investment sides of the industry's fundamentals have not bottomed out yet. sign.

  Judging from the latest monthly data on the liability side, the current industry premiums are still in a downward channel.

In September, in terms of life insurance premiums, China Life, Ping An Life, CPIC Life, and Xinhua Insurance all experienced negative year-on-year growth in varying degrees; in terms of property and casualty insurance premiums, PICC P&C, Ping An Property & Casualty, and CPIC Property & Casualty also experienced negative year-on-year growth.

  Since the beginning of this year, one of the important reasons for the continued negative growth of insurance premiums is that insurance products, as optional consumer goods, will suffer a significant impact on the growth rate of premiums when the economy is down or the consumption level of residents declines. This is also the cyclical nature of insurance stocks.

  China Life President Su Hengxuan analyzed that affected by the epidemic, residents were more cautious about long-term large expenditures and expenditures on non-essential items, that is, spending money more cautiously.

Therefore, the life insurance industry is facing considerable pressure.

  Ping An also mentioned in the third quarterly report that the current domestic epidemic is spreading more frequently, flooding and other natural disasters are superimposed, the foundation for economic recovery still needs to be further consolidated, and the level of residents' consumption declines month-on-month, which still has a certain impact on the company's long-term protection business.

  In particular, after the growth rate of premiums declined, the loss of life insurance agents accelerated, and consumers' demand for the price-performance ratio of insurance products increased, and many negative effects had formed negative feedback on the life insurance industry.

Under the resonance of many internal and external factors, insurance companies need to accelerate their transformation and response.

However, the current insurance companies with a high premium market share are all large-scale insurance companies, and some "ships are difficult to turn around."

In the context of the domestic economic slowdown, the life insurance industry, which accounts for more than 70% of the insurance industry’s premium income, is not small for the life insurance industry to bottom out and rebound as soon as possible, and it will take more time.

  Huajin Securities analyst Cui Xiaoyan and other brokerage researchers also believe that on the debt side, the premium data in September continued to be under pressure, and the inflection point has not yet appeared; on the asset side, long-term interest rates are still in a downward channel.

Therefore, it is recommended that investors pay close attention to leading indicators such as agents, good start, and long-end interest rates, and timely capture when the inflection point of the insurance industry appears.

(Securities Daily)