Insurance companies made a killing in stock trading
Over the weekend, China Life Insurance released its Q3 earnings forecast, with net profit for the first three quarters surging by 50%~70%, while New China Life Insurance, which announced its results a few days earlier, also saw a significant increase of 45%~65% in the first three quarters.
The significant increase in the performance of these two insurance companies is largely related to the overall recovery of the stock market. In fact, both insurance companies directly pointed this out in their announcements.
As I mentioned in my previous article on bullish insurance stocks, insurance is a call option on the stock market, with elasticity possibly second only to brokers in the financial sector. This is because a large number of insurance policies require reinvestment to fulfill the promised dividend rates.
There is a concept here called FVTPL, Fair Value Through Profit or Loss, which means that if the market price of these assets rises, the company's book profit will increase immediately; if the market price falls, the company's profit will be directly reduced.
Insurance companies hold a large number of financial assets such as stocks, funds, and bonds. According to accounting standards, different assets can be classified as:
1. FVOCI (Fair Value Through Other Comprehensive Income), where gains and losses are temporarily not included in profit but reflected in "Other Comprehensive Income."
2. FVTPL (Fair Value Through Profit or Loss), where gains and losses are immediately reflected in the income statement.
I referenced Soochow Securities' summary of FVTPL for insurance companies and found that New China Life Insurance and China Life Insurance rank among the top in this regard. This highlights that these two insurance companies will have more investment returns when the stock market is performing well, corresponding to greater stock price elasticity.
The NBV growth rate truly reflects the growth in the value of new policies and can also be understood as the core business value of insurance companies. In this regard, New China Life Insurance has shown good growth this year. High FVTPL growth + high NBV growth jointly drive the β+α of an insurance company.
This also explains why, in the current bull market for insurance stocks, New China Life Insurance has performed far better than Ping An Insurance.
I checked and found that New China Life Insurance and China Life Insurance have the highest weight in the CSI Insurance Theme Index. This index is currently tracked by the Founder Fubon CSI Insurance Index Fund, which is an LOF fund.
This means it can also be traded on the exchange, with the code 167301.
In terms of actively managed funds, Blue Xiaokang of China Europe has already heavily invested in these two stocks several quarters in advance.
Recently, there has been a trend in market style shifting from small-cap to mid-cap and large-cap stocks. Among the mid-cap and large-cap stocks, those with rare performance include the insurance sector, among others, which we will discuss later.
(Not for investment purposes)
$CHINA LIFE(02628.HK) $NCI(01336.HK) $保险主题(399809.SZ) $Founder Fubon CSI Insurance Theme Index Fund-A(167301.SZ)
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