2024 financial report will strike directly | PICC Group believes in long-term value, "the leader in property insurance" position remains solid

On August 28, PICC Group (601319.SH) disclosed its performance for the first half of the year, achieving insurance service income of RMB 261.629 billion, premium income of RMB 1,427.285 billion, and a net profit attributable to the parent company of RMB 22.687 billion, with year-on-year growth of 6.0%, 3.3%, and 14.1% respectively.

Among them, PICC Property and Casualty Insurance, the "number one in property insurance," maintained its leading position, with market share increasing from 32.5% to 34%. Insurance service income was RMB 235.841 billion, and premiums were RMB 311.996 billion, with year-on-year growth rates of 5.1% and 3.7% respectively.

For property insurance companies, the decline in investment and increased claims have been unavoidable challenges in the past two years.

PICC Group is also unable to escape their impact.

Firstly, investments continue to be under pressure.

In the first half of the year, due to a decrease in income from price differentials and investment income from equity method accounted for associated companies, the annualized total investment yield decreased by 0.8 percentage points to 4.1% year-on-year, and the annualized net investment yield decreased by 0.6 percentage points to 3.8% year-on-year.

It has been noted that in the evaluation of effective business value and new business value for the first half of the year, PICC Group has adjusted the assumed investment return rate from 5.0% in the same period last year to 4.5%.

Secondly, frequent disasters have led to high and sustained costs.

Yu Ze, Vice President of PICC Group and President of PICC Property and Casualty Insurance, stated at the beginning of the year that 2023 is a year when major disasters have the greatest impact on the comprehensive cost ratio. The company bore a net loss of RMB 13.3 billion from major disasters, an increase of 68.35% from the previous year.

At that time, Yu Ze set the goal of "controlling the comprehensive cost ratio for auto insurance within 97% and non-auto within 100%."

Affected by major disasters and other factors, the comprehensive cost ratio of PICC Property and Casualty Insurance increased by 0.4 percentage points to 96.8% year-on-year in the first half of the year.

Zhao Peng, President of PICC Group, introduced at the mid-year performance meeting that if the impact of major disasters is excluded, this indicator has already decreased by 0.5 percentage points.

Despite some business pressures, PICC Group maintained a net profit growth rate of 14.1% in the first half of the year.

In response to the contradiction between quantity and quality in the high-quality transformation of the industry, Zhao Peng stated, "While maintaining stable business growth, the company will prioritize long-term value growth and profitability improvement."

Stable Position as the "Number One in Property Insurance"

In the first half of the year, PICC Property and Casualty Insurance continued to increase its market share to 34%, with insurance service income growing by 5.1% to RMB 235.841 billion year-on-year.

The increase came from auto insurance, accident and health insurance, liability insurance, and other businesses.

The insurance service income for the above-mentioned types reached RMB 145.157 billion, RMB 24.751 billion, and RMB 18.339 billion, with growth rates of 5.3%, 7.5%, and 8.4% respectively.

However, the income performance does not necessarily mean further improvement in profitability.

While the insurance service income increased by 5.1%, underwriting profit decreased by 6% to RMB 7.62 billion; the liability insurance, with the highest growth rate, reported a negative profit, with a comprehensive cost ratio of 104.1%.

Overall, the cost control of PICC Property and Casualty Insurance still meets the initial expectations of "auto insurance within 97% and non-auto within 100%."

The comprehensive cost ratio for auto insurance decreased by 0.3 percentage points to 96.4% year-on-year; agricultural insurance increased by 0.3 percentage points to 94.8%, accident and health insurance rose by 1.4 percentage points to 99.9%, and liability insurance increased by 1.3 percentage points to 104.1% The fluctuation of the comprehensive cost rate is mainly affected by major disasters.

To control costs, PICC has taken multiple measures.

First, enhance risk reduction service capabilities.

For insurance types such as agricultural insurance and commercial property insurance that include catastrophic risk protection responsibilities, strengthen pre-inspection and mid-inspection measures.

For example, during the heavy rain in South China in June, early deployment and application of waterlogging IoT devices were carried out, disaster inspections were conducted for 15,000 clients, prompt arrangements and on-duty shifts were made for flood-prone areas, and agricultural insurance targets were harvested, transferred, and moved.

Yu Ze stated, "We have revamped some agricultural insurance products, implemented risk reduction management, and emergency claims handling. The claims ratio in the first half of the year dropped to 71.3% for the first time."

Second, optimize channels.

Currently, PICC Property & Casualty Insurance has three types of channels: agency, direct sales, and brokerage, with agency further divided into individual, part-time, and professional.

In the first half of the year, while agency sales channels still dominate, the lower-cost direct sales channel has seen a year-on-year premium growth rate of 7.0%.

TradeWind01 noted that the proportion of premium from its direct sales channel has increased by 1.3 percentage points to 40.5%; while the agency channel has decreased by 1.3 percentage points to 51.4%.

Unafraid of the "Fate of Auto Dealers"?

The continuous growth in the number of new energy vehicles has drawn widespread attention to the competition and cooperation between insurance companies and auto companies in the "blue ocean" of new energy vehicle insurance.

Anxin Securities pointed out that China's new energy vehicle insurance premiums are expected to exceed 513.1 billion yuan by 2030, accounting for 36% of total vehicle insurance premiums.

The leading OEM "player" to enter the market, BYD Insurance, has also disclosed its second-quarter performance, achieving a total insurance business income of 67 million yuan and a net profit of 6 million yuan.

There is still a significant gap compared to PICC Property & Casualty Insurance in this data.

However, as the proportion of new energy vehicles increases and the penetration rate of intelligent driving improves, the abundance of driver behavior data becomes an advantage for new energy vehicle companies, inevitably leading to changes in the auto insurance market.

Yu Ze stated, "BYD Insurance currently has little impact on the industry or on PICC."

"As a market leader, we are more focused on ourselves." Yu Ze stated that the company's strategy includes three aspects:

First, continuously reduce management and operating costs to benefit consumers;

Second, rely on the service network system to provide customers with more convenient and high-quality full-process services;

Third, further leverage advantages in costs, channels, and services.

Yu Ze said, "We have always maintained a cooperative and open attitude towards small and medium-sized insurance companies. We especially look forward to insurance companies with OEM backgrounds joining us, bringing new ideas and practices."

According to him, PICC Property & Casualty Insurance currently controls the comprehensive cost rate of new energy vehicle insurance for private cars within 100%.

"The claim rate is still generally higher than traditional fuel vehicles, but with the improvement of the technological level of new energy vehicles and the proficiency of drivers, this data is expected to decrease," Yu Ze said.

Increased Allocation to Fixed Income

On the investment side, the trend of pressure in 2023 continued into the first half of the year.

In the first half of the year, the foundation for the economic recovery in China was still not solid, high-quality growth opportunities in the domestic A-share market were relatively scarce, high dividend yields became the main theme sector, and national bond interest rates continued to decline.

PICC's total investment income decreased by 7.7% year-on-year to 29.064 billion yuan; net investment income decreased by 5.5% to 26.795 billion yuan The year-on-year decrease in the annualized total investment return rate was 0.8 percentage points, and the year-on-year decrease in the annualized net investment return rate was 0.6 percentage points; the three-year average total investment return rate was 4.6%.

Xin Feng (ID: TradeWind01) noted that PICC's investment return rate assumption was adjusted from 5.0% in the same period last year to 4.5%.

Regarding the investment portfolio, Cai Zhiwei, Vice President of PICC, said, "Fixed income is the ballast, and equities are the game-changer."

On one hand, the allocation of fixed-income assets increased to 1,031.30 billion yuan, an increase of 2.8 percentage points to 67.3%.

The proportion of time deposits increased by 2.2 percentage points to 7.9%, and government bonds and treasury bonds increased by 5.2 percentage points to 21.1%.

Cai Zhiwei stated that the increase in fixed-income assets aims to boost the cycle. "We seized the opportunity of high interest rates to increase the allocation of mature government bonds and local government bonds, which helps narrow the short-term gap in payments at both ends."

He revealed that the current duration gap of PICC Life Insurance has been maintained in the best range according to regulatory assessments.

On the other hand, the allocation of equity investments decreased to 293.719 billion yuan, a decrease of 2.3 percentage points to 19.2%.

Among them, the proportion of funds decreased by 1.8 percentage points, stocks decreased by 0.3 percentage points, and other equity investments decreased by 0.3 percentage points.

Cai Zhiwei said, "Equity investments are an important part of the overall investment portfolio. The company's allocation of equity assets in the open market is at a leading level in the industry."

Looking ahead, Cai Zhiwei stated that they will maintain composure and optimize equity investments.

First, they will focus on new quality productivity-related directions, seize opportunities in strategic emerging industries of technological innovation;

Second, they will focus on key industries related to risk inspection management in the main business, such as technology, green new energy, digital health, and elderly care;

Third, they will better grasp the relationship between absolute returns and relative returns, current returns and long-term returns, value investment and growth investment in terms of strategy