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PREPARED BY BNP PARIBAS SECURITIES ASIA THIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. IM
SECTOR REPORT
EQUITIES RESEARCH
ASIA EX JAPAN
ASIA INSURANCE SECTOR
IMPROVING INDUSTRY OUTLOOK
Rate sensitive basket
SUMMARY We launch our Asian insurance rate sensitive basket for 2H13
The five stocks within our Asian insurance interest rate sensitive basket
(AIA, China Life (CN), Fubon FHC, Hanwha and Bangkok Life)
most sensitive to the rising interest rate cycle theme as the US Fed starts
to taper off QE. Our 1H13 strategy of avoiding negative spre
23% index outperformance ytd.
OUTLOOK Our basket selection is based on our rate sensitivity analysis
Despite various approaches to EV sensitivity reporting, we attempt to
create a comparable interest rate sensitivity analysis across the Asia
insurance sector to identify the most EV and VONB sensitive players
within our rate sensitive basket. UST 10Y yield is already up 41% ytd,
while HK and Singapore sovereign 10Y yields are up 234% and 87%
VALUATION We select the highest rate sensitivity insurer in each geography
A rising interest rate scenario results in a combination of factors that
impact EV and VONB differently, including higher investment returns,
higher RDR, lower statutory liability and lower market value of assets
rate sensitivity analysis shows that Taiwan insurers have the highest EV
and VONB sensitivity to rising interest rates across the region, with Fubon
FHC being the highest. For every 100bp rise in investment yield, Fubon
FHC’s EV would rise by 68%, and its VONB by 67%. High sensitivity reflects
a product mix weighted towards long-term saving products with fairly
high guarantee rates. Although Korea life insurers also have large blocks
of negative spread policy, their rate sensitivity is not as high, given their
stronger solvency margins, higher proportion of protection and payout
annuities. Hanwha Life, however, has the highest sensitivity among Korea
life insurers. In China, China Life has greater interest rate sensitivity than
Ping An, given Ping An’s protection policy focus. In ASEAN, Bangkok Life
(BLA TB, NR) has much higher rate sensitivity than Great Eastern
NR), reflecting its bancassurance focus, at 62% of its total premium
income in 2012. EV sensitivity for AIA and Pru (PRU LN
comparable given their comprehensive approach. AIA’s 18% VONB CAGR
outlook should continue to differentiate it from Asia peers where we
forecast a 5-10% VONB CAGR over 2012-15.
Dominic Chan, CFA [email protected]
+852 2825 1175
Ling [email protected]
+852 2825 1135
BNP Paribas Securities (Asia) Ltd. research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on your salesperson for authorisation. Please see the important notice on the back page.
IMPORTANT DISCLOSURES CAN BE FOUND IN THE DISCLOSURES APPEND
BNPP RECOMMENDATIONS
Company BBG Code Rating
AIA 1299 HK China Life 2628 HK
Ping An Insurance 2318 HK
CPIC 2601 HK
NCI 1336 HK
Samsung Life 032830 KS
Hanwha Life 088350 KS
Samsung F&M 000810 KS
Fubon FHC 2881 TT
Cathay FHC 2882 TT HOLD
sensitive basket for 2H13
We launch our Asian insurance rate sensitive basket for 2H13
interest rate sensitive basket
(AIA, China Life (CN), Fubon FHC, Hanwha and Bangkok Life) screen as
the rising interest rate cycle theme as the US Fed starts
to taper off QE. Our 1H13 strategy of avoiding negative spread has seen
Our basket selection is based on our rate sensitivity analysis
Despite various approaches to EV sensitivity reporting, we attempt to
create a comparable interest rate sensitivity analysis across the Asia
sector to identify the most EV and VONB sensitive players
is already up 41% ytd,
while HK and Singapore sovereign 10Y yields are up 234% and 87%.
We select the highest rate sensitivity insurer in each geography
rising interest rate scenario results in a combination of factors that
and VONB differently, including higher investment returns,
higher RDR, lower statutory liability and lower market value of assets. Our
rate sensitivity analysis shows that Taiwan insurers have the highest EV
ross the region, with Fubon
FHC being the highest. For every 100bp rise in investment yield, Fubon
FHC’s EV would rise by 68%, and its VONB by 67%. High sensitivity reflects
term saving products with fairly
e rates. Although Korea life insurers also have large blocks
of negative spread policy, their rate sensitivity is not as high, given their
protection and payout
t sensitivity among Korea
life insurers. In China, China Life has greater interest rate sensitivity than
policy focus. In ASEAN, Bangkok Life
has much higher rate sensitivity than Great Eastern (GE SP,
reflecting its bancassurance focus, at 62% of its total premium
(PRU LN, NR) is more
comparable given their comprehensive approach. AIA’s 18% VONB CAGR
outlook should continue to differentiate it from Asia peers where we
Ling Tang [email protected]
+852 2825 1135
Frank Yuen, CFA [email protected]
+852 2825 1863
Dave Ko [email protected]
+822 2125 0506
BNP Paribas Securities (Asia) Ltd. research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on http://eqresearch.bnpparibas.com/indexfor authorisation. Please see the important notice on the back page.
TOP STOCK PICK
Company
BBG Code
Share Price
Target Price
1 Year - high
1 year - low
ASIA INSURANCE BASKE
Company Stock code
AIA 1299 HK Equity
Hanwha Life 088350 KS Equity
China Life 2628 HK Equity
Fubon FHC 2881 TT Equity
Bangkok Life BLA TB Equity
Source: BNP Paribas
22
24
26
28
30
32
34
36
38
40
Jun-12 Sep-12
(HKD) AIA
NDIX
Rating Share Price
Target Price
Upside / Downside
BUY 33.25 43.34 +30.3% BUY 17.96 26.00 +44.8%
BUY 49.95 80.00 +60.2%
BUY 24.30 33.00 +35.8%
BUY 23.05 33.00 +43.2%
BUY 105,500 128,000 +21.3%
BUY 6,690 8,900 +33.0%
BUY 243,500 260,000 +6.8%
BUY 37.70 47.50 +26.0%
HOLD 40.20 40.00 -0.5%
Leif Chang [email protected]
+886 2 8729 7057
http://eqresearch.bnpparibas.com/index. Please contact
8 JULY 2013
PICK
AIA
1299 HK
33.25
43.34
36.45
26.10
ASIA INSURANCE BASKET
Stock code FY13E P/EV
1299 HK Equity 1.51
088350 KS Equity 0.82
2628 HK Equity 1.05
2881 TT Equity 1.39
BLA TB Equity 2.70
(9)
(4)
1
6
11
16
21
26
Dec-12 Mar-13 Jun-13
(%)Rel to Hang Seng Index
Asia Insurance sector Dominic Chan, CFA
2 BNP PARIBAS 8 JULY 2013
Rising interest rates outlook for 2H13
In our Asia insurance sector note, Avoid negative spread in 2013, published on 7 January 2013, we projected 11% premium growth for life and non-life for 2013, driven by stronger GDP growth. For life, we expect the export-oriented Asian economies, including China, to represent 89% of total Asia life premium growth, while China and Korea would account for 80% of Asia’s total non-life premium growth. So far our predictions are on track, as both China and Korea have shown about 6% life premium growth up to May 2013. Non-life has been doing better than expected, with already mid-teen premium growth up to May 2013.
Also, we highlighted in January that a key risk to Asia insurers remains the protracted low interest rate environment, dampening investment yield. We identified Korea and Taiwan as the riskier areas given their much higher guarantee rate life policies. Indeed, both Samsung Life and Samsung Fire & Marine’s investment yields were below our forecasts by 10-37bp for FY13 (March year end; note FY13E is FY14E throughout the report for these stocks). Also, in Taiwan, we estimate that the full-year pre-hedging recurring yield for Cathy Life will be 3.4% (just 3.1% for 1Q13), below the 3.6% seen in past two years. Thus, in January we picked AIA, Samsung F&M and China Life (TW) as our top picks among Asia insurers, given that they have the least negative spread issues. Our top picks have outperformed our Asia Insurance Index by 23% ytd, with China insurers being the major drag (Exhibit 1).
EXHIBIT 1: Asia Insurance relative share price performance
Source: Bloomberg
US Fed tapering off QE, and Asia bond and equity performance
We believe that one of the key topics for the Asia insurance sector in 2H13 should be expectations of rising interest rate cycles, given the improving US job and housing markets ytd. In fact, the US Fed has recently stated that it would trim its bond purchases programme later in 2013 and halt the programme by mid-2014, if the economy progresses as it expects.
EXHIBIT 2: UST 10Y yield movement trend EXHIBIT 3: Sovereign bond yield (10Y) trend
Source: Bloomberg
Source: Bloomberg
75
85
95
105
115
125
Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13
Asia Insurance Index AIA Samsung F&M China Life TW
0
1
2
3
4
5
6
7
8
9
10
Dec 90
Oct 91
Aug 92
Jun 93
Apr 94
Feb 95
Dec 95
Oct 96
Aug 97
Jun 98
Apr 99
Feb 00
Dec 00
Oct 01
Aug 02
Jun 03
Apr 04
Feb 05
Dec 05
Oct 06
Aug 07
Jun 08
Apr 09
Feb 10
Dec 10
Oct 11
Aug 12
Jun 13
(%)USGG10YR index Average
(60%) (40%) (20%) 0% 20% 40% 60% 80%
Thailand
Malaysia
China
Taiwan
Philippines
Korea
Indonesia
Australia
Singapore
US
Hong Kong
2Q13 Chng q-q 1Q13 Chng q-q 2012 Chng y-y
Asia Insurance sector Dominic Chan, CFA
3 BNP PARIBAS 8 JULY 2013
US unemployment is expected by the Fed to fall to 7.5% in the short term, given the 155,800 increase in non-farm payrolls momentum (monthly average) over Mar-May 2013. Construction employment will likely add to May’s gains as the housing recovery pushes ahead. Clearly, the bond market has started to react to the US Fed’s potential tapering off its bond purchases in 1H13, with the UST 10Y yield rebounded strongly by 41% or 71bp ytd to 2.47%. About half of the yield gain ytd has happened since end of May 2013, not long before the US Fed gave a clearer direction on its tapering off of QE (Exhibit 2). The UK Gilt 10Y yield has also risen strongly, by 30% or 55bp ytd to 2.37%.
In Asia, Hong Kong and Singapore government bond yields (10Y) have advanced the most; up 234% and 87% respectively, followed by Indonesia’s 40% and Taiwan’s 24% increase ytd (Exhibit 3). China and Philippines government bond yields have remained flat to down 4% ytd, respectively, while the sovereign bond yields of Malaysia, Thailand and Korea have advanced only 4-8%.
Asia’s negative interest spread policy revisited
Interest rate risk arises if the duration of an insurer’s assets and liabilities is not properly matched, which is usually the case In Asia. Insurers that have backed their long-term insurance liabilities with short duration assets have to reinvest a portion of their assets at a lower yield if interest rates decline and stay low. Life insurer liabilities often last 30 years or more, and in many markets assets with such a long duration are neither available nor liquid, thereby making proper ALM challenging.
Rising interest rates usually result in lower policy pricing, higher demand for insurance products, higher investment income and a rise in the economic value of insurance companies under the embedded value (EV) concept. However, investment income would not be as important for the profitability of property insurers (short-tail business) as it would be for long-tail non-life and life insurers, as the time between the payment of premiums and claims is short.
EXHIBIT 4: Asia insurance coverage universe – negative spread policy analysis
Life insurers
Recurrent investment yield
2013E
Total investment yield
2013E (P&L)
Average insurance liability cost
2013E
Insurance policy (with high
guarantee) mix
Average guarantee rate for insurance policy
(with guarantee)
Insurance policy (without high
guarantee) mix
Total inv. yield vs avg liability
cost
(%) (%) (%) (%) (%) (%) (%)
Regional
AIA 4.30 4.60 3.62 6 5.50 94 0.98
Korea
Samsung Life na 4.18 5.50 54 6.84 46 (1.32)
Hanwha Life na 5.37 5.73 64 6.75 36 (0.36)
Tong Yang Life na 4.47 5.20 45 TBC 55 (0.73)
Average life 5.48 54 6.79 46 (0.80)
Samsung F&M na 4.51 4.22 18 5.85 82 0.29
Dongbu Ins na 4.88 4.20 18 4.46 82 0.68
Hyundai M&F na 4.56 4.18 14 6.09 86 0.38
LIG Ins na 4.52 4.12 8 4.60 92 0.40
Meritz F&M na 5.25 3.94 9 5.14 91 1.31
Average non-life 4.13 13 5.23 87 0.61
Taiwan
Cathy FHC n.a. 4.60 4.61 62 6.0 38 (0.01)
Fubon FHC n.a. 3.50 4.06 30 6.0 70 (0.56)
China Life n.a. 3.80 3.72 38 6.0 62 0.08
Average 4.13 43 6.0 57 (0.16)
China
China Life 4.40 3.60 3.84 0.0 <2.5 100 (0.24)
Ping An 4.00 4.00 4.31 20.8 6.1 79 (0.31)
China Pacific 4.50 3.90 4.53 11.0 6.4 89 (0.63)
NCL 4.90 4.40 5.10 2.1 6.5 na (0.70)
Sources: Company; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
4 BNP PARIBAS 8 JULY 2013
As regards total investment yield for 2013E (including recurrent bond coupon rates plus trading equity and debt gain/loss), while rising long-term bond yields are favourable for re-pricing debt securities on a medium to long-term basis (as the back book debt securities mature), the recent tapering off of QE by the US Fed, as well as a slowing China and India economic outlook, has increased equity market volatility, especially in Hong Kong/China and Korea, which have seen 8-11% declines ytd in equity market indices. ASEAN stock markets have been holding up well with a 4-11% gain ytd.
As a result, the total investment yield for our Asia insurance coverage has been lowered for 2013E (Exhibit 4). In addition, average insurance liability costs are reduced given lower policyholder dividends as insurers share lower investment gains with policyholders. Given the high fixed rate guarantee nature for many Asia life insurers such as Korea and Taiwan, the negative spread situation still persists for most Korea and Taiwan life insurers in 2013E, while insurers with positive asset liability spreads are seeing some contraction given lower equity gains for 2013E.
EV and VONB sensitivity methodology
Having said that, higher interest rates are good for life insurance companies, given positive asset and liability repricing gaps. As UST 10Y and 30Y bond yields continue to rise, we believe that the market will be increasingly looking for insurers whose embedded value (EV) and value of new business (VONB) would be most sensitive to rising interest rates. In Europe, life insurers apply consistent European market methods in calculating EV and VONB, while Asia life insurers use a traditional deterministic discounted cash flow methodology. The latter relies on a set of long-term actuarial assumptions, including long-term investment return, mortality and morbidity rates, persistency rates and expenses ratio.
Thus, Asia insurers might not need to adjust their long-term assumptions closer to the actual experience as frequently as their European counterparts. Despite this, the Asia insurers’ disclosure on EV sensitivity still provides the best indication of their EV and VONB sensitivity to rising interest rates.
Although various forms of EV and VONB sensitivity disclosure are provided by Asia insurers, life insurers use different methods in deriving their EV and VONB sensitivity. We have come across a more comprehensive method, used by AIA, where both long-term investment return and risk discount rates (RDR) are increased according to interest rate sensitivity. A rising interest rate scenario would result in a combination of several factors impacting EV and VONB differently. These factors include higher investment returns, higher RDR, lower statutory liability, and lower market value of assets (Exhibit 5).
EXHIBIT 5: Effect of rising interest rate on EV and VONB
ANW (a) VIF (b) EV (a+b) VONB
Higher investment returns
+ + +
Higher RDR
- - -
Lower Statutory liability + - + +
Lower market value of assets -
-
Source: BNP Paribas
Both EV and VONB would rise after a simultaneous lift in investment return and RDR, as well as lower statutory liability, in a rising interest rate scenario (Exhibit 5). The sensitivity of VONB is usually higher than EV, as marking to market of asset values would affect only adjusted net worth (ANW), which is a key part of EV. Given asset and liability duration mismatches, negative implications for ANW from lower market values of asset would be more than offset by lower statutory liability.
Rising investment returns should have a positive impact on value of in-force (VIF) and VONB on higher investment income, while higher RDR would negatively impact VIF and VONB as the present value of VIF and VONB cashflows would be adjusted lower (Exhibit 5).
Perhaps the more difficult part would be the effect of lower statutory liability on ANW, VIF and VONB. On the inforce block, the effect of a higher interest rate is an immediate release of reserve into surplus (ie positive for ANW on lower reserves). On the reserve itself, future decreases in reserve would be lower (ie negative for VIF as running off a lower reserve). Overall, the result should be a lower value of future profit but the effect should be smaller than the immediate release of reserve, so that the total net worth would be higher under a higher interest rate scenario (Exhibit 5).
In short, on the one hand, profits are released earlier; on the other, reinvestment rates are also higher, so cumulative values at the end would also be larger. On VONB, there would be less new business strain for VONB because of having to set up a lower reserve; this would more than offset lower future cashflows for VONB from the run off of lower reserves (Exhibit 5).
Asia Insurance sector Dominic Chan, CFA
5 BNP PARIBAS 8 JULY 2013
Asia insurance interest rate sensitivity analysis
In our EV and VONB sensitivity analysis for Asia insurance, we focus on the impact on EV from a 100bp rise in interest rates and 10% rise in equity prices, as well as from a 100bp rise in overall investment yield. Only AIA and Pru use a more comprehensive interest rate sensitivity method, marking to market assets and liabilities as well as changes of RDR. Many Asia peers don’t take RDR and reserves into account. Thus, to make our regional interest rate sensitivity more comparable, we organise our analysis such that only higher investment return is taken into account. We attempted to take out the RDR factor from the interest rate sensitivity that is reported for both AIA and Pru, given the available RDR sensitivity information. But, the impact of marking to market asset values would remain in the interest rate sensitivity. This explains why AIA and Pru have lower EV and VONB sensitivity than other Asian peers, as for them, EV would change by only 4-7% for every 100bp rise in investment yield (Exhibit 6).
EXHIBIT 6: Asia insurance – interest rate and equity price sensitivity to EV and VONB, based on published data
ANW VIF EV (base) EV (after
100bp rise in interest rates)
EV Change
EV (after 10% rise in
equity price)
EV Change
EV (after 100bps rise in
investment yield)
EV Change
VONB (Base)
VONB after 100bp rate
hike
VONB change
Duration (years)
(LC m) (LC m) (LC m) (LC m) (%) (LC m) (%) (LC m) (%) (LC m) (LC m) (%) (LC m)
Regional
AIA 13,170 18,238 31,408 33,681 7% 31,961 2% 32,738 4% 1,188 1,512 27% 7.7
China
China Life 128,507 209,088 337,596 na na na na 405,677 20% 20,834 26,188 26% 4.4
Ping An 165,386 120,488 285,874 na na na na 316,256 11% 15,915 18,007 13% na
China Pacific 86,237 49,043 135,280 na na na na 156,756 16% 7,060 8,560 21% 4.3
New CL 25,458 31,412 56,870 na na na na 67,950 19% 4,172 5,536 33% 4.3
PICC Group 63,464 17,676 81,141 na na na na 89,579 10% 4,769 6,953 46% 4.3
Taiwan
Cathy FHC 242 323 565 na na na na 873 55% 50 66 32% 4.6
Fubon FHC 101 117 218 na na na na 367 68% 32 53 67% na
China Life TW 54 41 95 na na na na 153 62% 12 na na na
Korea
Samsung Life 22,308 2,555 24,863 26,843 8% na na na na 1,148 1,230 7% na
Hanwha Life 7,965 281 8,246 9,262 12% na na na na 557 675 21% na
Tong Yang Life 1,540 439 1,980 2,097 6% na na na na 116 155 34% na
Samsung F&M 8,639 4,245 12,884 13,840 7% na na na na 935 1,047 12% na
Dongbu Insur 2,649 2,268 4,917 5,499 12% na na na na 413 479 16% na
Hyundai M&F 1,987 2,262 4,250 4,760 12% na na na na 397 470 18% na
LIG Ins 1,491 1,740 3,231 3,592 11% na na na na 344 403 17% na
Meritz F&M 997 1,494 2,490 2,853 15% na na na na 377 430 14% na
Thailand
Bangkok Life 11,457 19,154 30,610 na na na na 39,514 29% 1,910 2,838 49% 4.6
Singapore
Great Eastern 4,194 4,411 8,605 na na na na 9,207 7% 353 383 8% 4.2
UK
Prudential 7,032 15,411 22,443 23,343 4% 22,980 2% 23,081 3% 2,452 2,836 16% na
Sources: Company, BNP Paribas Note: We linearly scale all scenario analysis to a standardised change (100bp/10%) of the factor for the purpose of comparison
Stripping out AIA and Pru, our interest rate sensitivity analysis shows that Taiwan insurers have the highest EV and VONB sensitivity to rising interest rate across the region, with Fubon FHC being the highest. For every 100bp rise in investment yield, Fubon FHC’s EV would rise by 68%, and its VONB rise by 67% (Exhibit 6). We believe that this high interest rate sensitivity is because of its product mix tilt towards long-term saving products with fairly high guarantee rates. We estimate that about 43% of the key Taiwan insurers have paid high guarantee rates at about 6%. In addition, Fubon FHC would have the highest negative interest spread of about 56bp (Exhibit 4).
Asia Insurance sector Dominic Chan, CFA
6 BNP PARIBAS 8 JULY 2013
On the other hand, although Korean life insurers have also had large inforce blocks of negative spread policy, which we estimate to be 54% of their total inforce policies, offering about 6.5-6.8%, their EV sensitivity shows only 6-18% change in EV for every 100bp increase in interest rates. We believe that the lower sensitivity is due to its stronger capital position, with a solvency margin above 300% on average for the key life insurers. Also, this reflects lower interest rate sensitive in force book for the rest of their non-high guarantee policies, such as protection policies and payout annuities. The magnitude of the decline in 10-year government bond yields in Taiwan (down 63% from 2001 to now) has been much greater than that of Korea (down 46% over the same period), leading to a sharper increase in the value of guarantees for Taiwan than Korea (Exhibits 7-8). However, among the key Korea life insurers, Hanwha Life has relatively high interest rate sensitivity. For every 100bp rise in interest rates, its EV would increase by 12% and VONB by 21% (Exhibit 6).
EXHIBIT 7: Taiwan 10Y Sovereign bond yield trend EXHIBIT 8: Korea 10Y Sovereign bond yield trend
Source: Bloomberg
Source: Bloomberg
In China, China Life has the highest EV sensitivity to interest rates, as its EV would increase by 20% for every 100bp rise in investment yield, higher than Ping An’s 11%. Despite Ping An’s higher legacy guarantee policies (or 21% of its entire insurance liabilities), we believe that the lower interest rate sensitivity for Ping An is due to the ANW dilution from its other businesses, such as banking, P&C and brokerage. Its VIF accounts for only 73% of ANW, much lower than China Life’s 163% (Exhibit 6).
Also, Ping An sells more protection polices through its tied agents, compared with China Life’s focus on bancassurance channels. China Life has been selling more interest rate sensitive savings products, such as three- to five-year endowment policies with a maximum 2.5% guarantee rate (though this cap has recently been raised to 3.5%), than Ping An. China Pacific has less EV and VONB sensitivity than China Life, given its greater emphasis on protection policies through its tied agency distribution (Exhibit 6). Another interesting finding is that New China Life and PICC Group have relatively high VONB sensitivity, because they have recently been selling more long-term savings-related policies through bancassurance channels, coupled with their recent H-share IPOs.
EXHIBIT 9: Bangkok Life premium by distribution channels (2012) EXHIBIT 10: Great Eastern insurance liability by products (2012)
Source: TLAA
Source: Great Eastern
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Jun 01 Jun 03 Jun 05 Jun 07 Jun 09 Jun 11 Jun 13
(%) GVTW10YR index Average AIA Assumption
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Jun 01 Jun 03 Jun 05 Jun 07 Jun 09 Jun 11 Jun 13
(%)GVSK10YR index Average AIA Assumption
Agency34.7%
Banc62.2%
DM0.2%
Other2.8%
Whole Life56.7%
Endownment35.9%
Term0.9%
Accident and health
2.6%
Annuity1.6%
Others2.3%
Asia Insurance sector Dominic Chan, CFA
7 BNP PARIBAS 8 JULY 2013
Bangkok Life has much higher interest rate sensitivity than Great Eastern, reflecting Bangkok Life’s bancassurance focus, which accounts for 62% of its total premium income (Exhibit 9). Great Eastern, on the other hand, runs 20,000 tied agents in Singapore and Malaysia, focusing more on long-term whole life protection policies, with endowment plans accounting for 36% of its total insurance liabilities (Exhibit 10). OCBC’s strategic involvement in Great Eastern started in 2004.
Based on the available sensitivity disclosure, the EV sensitivity for AIA and Pru is not comparable to others in our analysis. Their lower than peers EV sensitivity is due to marking to market of asset value, which we do not adjust for in our analysis. However, the EV sensitivity for AIA and Pru is more comparable with each other, as both would take the hit from marking to market losses of asset value.
Of the two, AIA has higher EV and VONB sensitivity to rising interest rates, in particular on the VONB part. For every 100bp rise in interest rate, AIA’s VONB would rise by 27%, compared with 16% for Pru (Exhibit 6). We would assume the difference is mainly due to the geographic mix, as 13% of Pru’s VONB is from the UK and 35% from the US (Exhibit 11). According to Pru, the UK business is increasingly focusing on non interest rate sensitive products, such as unit-linked, protection products and payout annuities. In the US, the regulator has recently lowered the minimum interest rate guarantee to 2% from 4% for universal life and to 1% from 3% for deferred fixed annuities.
EXHIBIT 11: AIA vs Prudential key performance metrics comp EXHIBIT 12: Asia Insurance P/EV vs VONB growth 2013E metrics
AIA Prudential Prudential Asia
VONB growth (y-y %)
2011 40 6 19
2012 27 14 18
1Q13 25 5 18
ANP growth (y-y %)
2011 22 6 11
2012 9 14 14
1Q13 37 8 12
VONB Margin (%)
2011 37 44 49
2012 44 44 50
1Q13 38 41 47
VONB by geography (2012) (%)
Asia 100 52 100
UK 0 13 0
US 0 35 0
Source: Companies
Note: All companies are covered by BNPP except Bangkok Life, Prudential and Great Eastern Sources: Bloomberg consensus data; BNP Paribas estimates
AIA will report 1H13 results on 26 July. We expect 20% VONB growth y-y to USD331m for 2Q13, driven by a 60bp rise in VONB margin and 18% ANP growth. Thailand’s corporate tax rate will be set at 20% from 2015, which offers VONB margin upside potential.
While AIA’s EV would be slightly affected by lower than expected positive investment return variance in 2013E, we believe AIA’s VONB would remain solid, as reflected in its 1Q13 VONB, up 25.1% y-y to USD286m or 8% above our forecast (Exhibit 13). This beat even the highest end of the market’s expected growth range of 15-22%. Such strong VONB growth was driven by 37% y-y ANP growth, offsetting a 3.7pp y-y drop in VONB margin to 38.4% (Exhibit 14).
We believe AIA continues to perform well in its major markets, ie HK, Thai and Singapore, and has seen a strong improvement in Korean agency operations. Also, its Other Markets (ie Philippines, Indonesia and Australia) continue their rapid new business growth, while Malaysia has benefited from its ING acquisition in December 2012. Lower VONB margins but strong ANP growth in 1Q13 reflects strong performances in Other Markets, Malaysia and Korea, where VONB margins are lower than in other parts of the group.
Given stronger than expected VONB in 1Q13, we recently raised our VONB forecast by 1-3% for 2013-15, as we raised our ANP forecast by 1-4%, while lowering our VONB margin by a slight 0.1-0.5pp (VONB offsets market volatility, 25 June 2013). Thus, after an impressive 30% VONB CAGR (2009-12), we expect an 18% VONB CAGR (2012-15), mostly driven by our estimated 16% ANP CAGR (2012-15), with VONB margin at 43.3-45.1% range (Exhibit 14). We expect Other Markets’ and Malaysia to be the biggest VONB drivers by geography for 2013, and Other Markets, Thailand and Hong Kong to be the top three VONB growth contributors in 2014.
AIA
Samsung Life
Hanwha Life
LIG
Dongbu
China Life
Ping An
CPIC
NCL
Cathay FHC
Great Easter n
Bangkok Life
Prudential Fubon FHC
0
0.50
1.00
1.50
2.00
2.50
3.00
(5.0) 0.0 5.0 10.0 15.0 20.0 25.0
P/EV (x)
VONB (y-y %)
China Life TWHyundai M&F
Samsung F&M
Asia Insurance sector Dominic Chan, CFA
8 BNP PARIBAS 8 JULY 2013
EXHIBIT 13: AIA VONB and ANP trend (quarterly) (USDm) EXHIBIT 14: AIA VONB margin (quarterly) (%)
Sources: Company; BNP Paribas estimates
Sources: Company; BNP Paribas estimates
AIA remains well positioned in the fast growing and yet underinsured Asia Pacific region, with significant market franchises in most of its geographic footprints. Strong 2Q13 ANP growth would reaffirm our view that ANP will continue to be the biggest driver of VONB growth in the coming three years, and it would continue to differentiate AIA from other major listed life insurers in Asia under our coverage with only 5-10% VONB CAGRs (2012-2015) (Exhibit 15).
With 33% share price upside, we reiterate our BUY rating on AIA with our 23.3x target INBM. We have both AIA and Bangkok Life in our Asia insurance interest rate sensitive basket (Exhibit 16), which highlights which Asian insurers are most sensitive to rising interest rates in 2H13, based on company data, as the US Fed proceeds with tapering off QE from 2H13, before halting it altogether from mid-2014.
EXHIBIT 15: Asia Insurance – Key actuarial performance metrics
Life insurers ----------- VONB growth ---------- EV growth Combined ratio TP CP Stock Solvency
2013E 2014E 2013E 2013E Rec margin
(%) (%) (%) (%) (LC) (LC) (%)
Regional
AIA 20.6 16.1 8 na 43.34 32.5 BUY 353
Korea
Samsung Life 4.0 4.0 5 n.a. 128,000 107,500 BUY 408
Hanwha Life 3.7 4.8 6 n.a. 8,900 6,620 BUY 214
Tong Yang Life 2.9 2.8 10 n.a. 11,900 9,750 HOLD 300
Samsung F&M 10.0 12.0 11 101 260,000 245,000 BUY 439
Dongbu Ins 9.9 11.1 9 101 56,000 47,550 BUY 255
Hyundai M&F 10.0 9.5 12 101 36,000 31,050 HOLD 207
LIG Ins (0.1) (3.5) 4 102 27,300 23,150 HOLD 177
Meritz F&M (2.3) (2.9) 13 103 13,000 12,900 HOLD 183
Taiwan
Cathy FHC (3) 5 6 n.a. 40.0 39.8 HOLD 250-300
Fubon FHC 5 5 20 n.a. 47.5 37.2 BUY 200-300
China Life 10 5 14 n.a. 36.0 27.9 BUY >300
China
China Life 3.2 3.1 15 n.a. 26 17.6 BUY 236
Ping An 3.8 6.5 16 98 80 49.6 BUY 186
China Pacific 4.4 4.6 10 99 33 24.2 BUY 312
NCL 0.3 2.2 14 n.a. 33 22.7 BUY 193
Prices as of 4 July 2013 Source: Company data; BNP Paribas estimates
0
100
200
300
400
500
600
700
800
900
1,000
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13F
3Q13F
4Q13F
(USD m) VONB ANP
20
25
30
35
40
45
50
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13F
3Q13F
4Q13F
(%)
Asia Insurance sector Dominic Chan, CFA
9 BNP PARIBAS 8 JULY 2013
EXHIBIT 16: Asia insurance rate sensitive basket
Stock
Ticker Rec Current
Price Target Price Upside
EV sensitivity to interest rate
VONB sensitivity to interest rate
(LC) (LC) (%) (%) (%)
1 Fubon FHC 2881 TT BUY 37.2 47.5 28 68 67
2 China Life 2628 HK BUY 17.6 26 48 20 26
3 Bangkok Life BLA TB NR na na na 29 49
4 Hanwha Life 088350 KS BUY 6620 8900 34 12 21
5 AIA 1299 HK BUY 32.5 43.34 33 4 27
Prices as of 4 July 2013 Source: Company data; BNP Paribas
EXHIBIT 17: AIA P/EV band chart EXHIBIT 18: China Life P/EV band chart
Sources: Bloomberg; BNP Paribas
Sources: Bloomberg; BNP Paribas
EXHIBIT 19: Fubon FHC P/EV band chart EXHIBIT 20: Hanwha Life P/EV band chart
Sources: Bloomberg; BNP Paribas
Sources: Bloomberg; BNP Paribas
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13
(x)
Mean
+1 S.D
+2 S.D
-1 S.D
-2 S.D
+1 STDEV
-1 STDEV
0
1.0
2.0
3.0
4.0
5.0
6.0
Jan-07 Jan-10 Jan-13
(x)
Median P/EVPS: 2.3x
+1 STDEV
-1 STDEV
0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
(x)
Median P/EVPS: 1.8x
4
5
6
7
8
9
10
Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13
0.6x
0.8x
0.9x
1.0x
1.1x
0.7x
(Wtrn)
Asia Insurance sector Dominic Chan, CFA
10 BNP PARIBAS 8 JULY 2013
Financial statements AIA
Profit and Loss (USD m) Year Ending Nov 2011A 2012A 2013E 2014E 2015E
Gross premium and fee 12,935 13,816 15,439 17,355 19,518
Reinsurance (634) (762) (605) (874) (1,159)
Net premium earned 12,301 13,054 14,834 16,481 18,359
Claims and benefits (9,072) (13,374) (13,832) (15,700) (17,589)
Policy acquisition cost (1,649) (1,641) (1,897) (2,136) (2,417)
Securities trading income 0 0 0 0 0
G&A cost (1,265) (1,359) (1,586) (1,781) (2,001)
Other income 0 0 0 0 0
Other provisions 0 0 0 0 0
Underwriting profit 315 (3,320) (2,481) (3,136) (3,648)
Interest and dividend income 0 0 0 0 0
Capital gains/(losses) 1,777 6,971 5,404 7,239 8,242
Dividend and interest to policyholders 0 0 0 0 0
Net investment income 1,777 6,971 5,404 7,239 8,242
Other income 114 127 140 154 169
Other operating costs 0 0 0 0 0
Operating profit 2,206 3,778 3,063 4,257 4,763
Recurring non operating income 12 16 31 33 35
Associates 12 16 31 33 35
Goodwill amortization 0 0 0 0 0
Non recurring items (50) (80) (88) (97) (106)
Profit before tax 2,168 3,714 3,006 4,193 4,692
Tax (560) (685) (701) (779) (985)
Profit after tax 1,608 3,029 2,305 3,414 3,707
Minority interests (8) (11) (12) (13) (15)
Preferred dividends 0 0 0 0 0
Other items 0 0 0 0 0
Reported net profit 1,600 3,018 2,293 3,401 3,693
Non recurring items & goodwill (net) 50 80 88 97 106
Recurring net profit 1,650 3,098 2,381 3,497 3,799
Supplementary items
Embedded value 27,239 31,408 34,018 38,191 43,097
One year's new business value 932 1,188 1,433 1,663 1,929
Per share (USD)
Recurring EPS * 0.14 0.26 0.20 0.29 0.32
Reported EPS 0.13 0.25 0.19 0.28 0.31
DPS 0.04 0.05 0.05 0.06 0.07
Embedded value per share 2 3 3 3 4
Growth
Net premium earned (%) 11.0 6.1 13.6 11.1 11.4
Underwriting profit (%) (108.8) (1,154.0) (25.3) 26.4 16.3
Operating profit (%) (38.7) 71.3 (18.9) 39.0 11.9
Reported net profit (%) (40.8) 88.6 (24.0) 48.3 8.6
Recurring EPS (%) (39.8) 87.8 (23.1) 46.9 8.6
Reported EPS (%) (40.8) 88.6 (24.0) 48.3 8.6
Income breakdown
Net premium earned (%) 86.7 64.8 72.8 69.0 68.6
Net investment income (%) 12.5 34.6 26.5 30.3 30.8
Other income (%) 0.8 0.6 0.7 0.6 0.6
Operating performance
Underwriting margin (%) 2.6 (25.4) (16.7) (19.0) (19.9)
Operating margin (%) 17.93 28.94 20.65 25.83 25.94
Investment yield (%) 2.16 7.00 4.59 5.29 5.26
Effective tax rate (%) 25.8 18.4 23.3 18.6 21.0
Dividend payout on recurring profit (%) 30.8 18.5 25.7 20.5 22.2
ROE (%) 8.1 12.9 8.4 11.1 11.0
ROE - COE (%) - - - - -
ROA (%) 1.49 2.50 1.65 2.15 2.10
Cash & equivalents 65.8 (31.5) (24.3) 5.0 5.0
Bank deposits - - - - -
Debt securities 9.9 20.4 13.6 13.7 11.9
Equity securities (13.5) 23.1 21.0 20.8 18.8
* Pre exceptional, pre-goodwill and fully diluted
Sources: AIA; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
11 BNP PARIBAS 8 JULY 2013
Financial statements AIA
Balance Sheet (USD m) Year Ending Nov 2011A 2012A 2013E 2014E 2015E
Cash & equivalents 4,303 2,948 2,230 2,342 2,459
Bank deposits 0 0 0 0 0
Debt securities 72,517 87,287 99,188 112,782 126,253
Equity securities 19,737 24,294 29,400 35,528 42,195
Investment properties 896 1,035 1,087 1,141 1,198
Other financial assets 0 0 0 0 0
Total investments 97,453 115,564 131,905 151,794 172,106
Tangible fixed assets 359 412 466 688 767
Associates 61 91 96 100 105
Deferred acquisition cost 12,818 14,161 15,962 17,364 18,917
Goodwill 0 0 0 0 0
Other intangible assets 276 272 311 344 383
Other assets 3,494 3,939 6,716 1,592 (583)
Total assets 114,461 134,439 155,457 171,882 191,695
Insurance reserve 78,752 90,574 100,862 113,178 126,836
Policyholders' deposits 8,360 8,865 10,208 11,765 13,354
Unearned premium reserve 0 0 0 0 0
Other reserves 0 0 0 0 0
Total insurance liabilities 87,112 99,439 111,070 124,943 140,191
Hybrid capital 0 0 0 0 0
Other liabilities 5,934 8,172 14,147 13,930 14,904
Total liabilities 93,046 107,611 125,216 138,873 155,095
Share capital 12,044 12,044 12,044 12,044 12,044
Reserves 9,269 14,653 18,053 20,808 24,385
Total equity 21,313 26,697 30,097 32,852 36,429
Minority interests 102 131 143 156 171
Total liabilities & equity 114,461 134,439 155,457 171,882 191,695
Per share (USD)
Book value per share 1.77 2.22 2.50 2.73 3.02
Tangible book value per share 0.68 1.02 1.15 1.26 1.42
Growth
Total investments (%) 5.7 18.6 14.1 15.1 13.4
Total assets (%) 6.1 17.5 15.6 10.6 11.5
Total insurance liabilities (%) 5.9 14.2 11.7 12.5 12.2
Book value per share (%) 9.0 25.3 12.7 9.2 10.9
Levarage & capital measures
Equity/assets (%) 18.6 19.9 19.4 19.1 19.0
Tangible equity/assets (%) 7.2 9.1 8.9 8.8 8.9
Solvency margin ratio (%) 310.9 353.2 348.4 366.3 384.1
Valuation 2011A 2012A 2013E 2014E 2015E
Recurring P/E (x) * 31.3 16.7 21.7 14.8 13.6
Reported P/E (x) 32.3 17.1 22.5 15.2 14.0
Dividend yield (%) 1.0 1.1 1.2 1.4 1.6
Price/book (x) 2.4 1.9 1.7 1.6 1.4
Price/tangible book (x) 6.3 4.2 3.7 3.4 3.0
Price/tangible book @ target price (x) 8.2 5.5 4.9 4.4 3.9
Price/embedded value (x) 1.9 1.6 1.5 1.4 1.2
Price/embedded value @ target price (x) 2.5 2.1 2.0 1.8 1.6
* Pre exceptional, pre-goodwill and fully diluted
Sources: AIA; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
12 BNP PARIBAS 8 JULY 2013
Financial statements China Life
Profit and Loss (RMB m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E
Gross premium and fee 318,252 322,742 325,930 332,727 342,660
Reinsurance (232) (384) (652) (665) (685)
Net premium earned 318,020 322,358 325,278 332,061 341,975
Claims and benefits (117,294) (121,039) (117,992) (119,572) (120,682)
Policy acquisition cost (27,434) (27,754) (31,217) (31,868) (32,819)
Securities trading income 0 0 0 0 0
G&A cost (25,419) (27,196) (28,520) (29,579) (31,131)
Other income (181,323) (185,222) (185,408) (189,275) (194,926)
Other provisions 0 0 0 0 0
Underwriting profit (33,450) (38,853) (37,860) (38,233) (37,583)
Interest and dividend income 60,722 73,243 85,262 98,845 113,672
Capital gains/(losses) (10,871) (27,189) (15,457) (22,027) (25,331)
Dividend and interest to policyholders 0 0 0 0 0
Net investment income 49,851 46,054 69,805 76,818 88,341
Other income 1,899 730 0 0 0
Other operating costs 0 0 (537) (609) (727)
Operating profit 18,300 7,931 31,409 37,976 50,031
Recurring non operating income 2,213 3,037 3,368 3,873 4,454
Associates 2,213 3,037 3,368 3,873 4,454
Goodwill amortization 0 0 0 0 0
Non recurring items 0 0 0 0 0
Profit before tax 20,513 10,968 34,776 41,848 54,485
Tax (2,022) 304 (4,173) (5,022) (6,538)
Profit after tax 18,491 11,272 30,603 36,827 47,947
Minority interests (160) (211) (2,099) (2,526) (3,288)
Preferred dividends 0 0 0 0 0
Other items 0 0 0 0 0
Reported net profit 18,331 11,061 28,504 34,301 44,658
Non recurring items & goodwill (net) 0 0 0 0 0
Recurring net profit 18,331 11,061 28,504 34,301 44,658
Supplementary items
Embedded value 292,854 334,327 385,507 434,917 493,773
One year's new business value 20,199 20,834 21,496 22,155 22,773
Per share (RMB)
Recurring EPS * 0.65 0.39 1.01 1.21 1.58
Reported EPS 0.65 0.39 1.01 1.21 1.58
DPS 0.23 0.14 0.30 0.36 0.47
Embedded value per share 10 12 14 15 17
Growth
Net premium earned (%) 0.0 1.4 0.9 2.1 3.0
Underwriting profit (%) 18.6 16.2 (2.6) 1.0 (1.7)
Operating profit (%) (53.4) (56.7) 296.0 20.9 31.7
Reported net profit (%) (45.5) (39.7) 157.7 20.3 30.2
Recurring EPS (%) (45.5) (39.7) 157.7 20.3 30.2
Reported EPS (%) (45.5) (39.7) 157.7 20.3 30.2
Income breakdown
Net premium earned (%) 86.0 87.3 82.3 81.2 79.5
Net investment income (%) 13.5 12.5 17.7 18.8 20.5
Other income (%) 0.5 0.2 0.0 0.0 0.0
Operating performance
Underwriting margin (%) (10.5) (12.1) (11.6) (11.5) (11.0)
Operating margin (%) 5.75 2.46 9.66 11.44 14.63
Investment yield (%) 3.54 2.81 3.64 3.48 3.48
Effective tax rate (%) 9.9 (2.8) 12.0 12.0 12.0
Dividend payout on recurring profit (%) 35.5 35.8 30.0 30.0 30.0
ROE (%) 9.2 5.4 12.3 13.6 15.9
ROE - COE (%) (2.1) (5.9) 1.1 2.3 4.7
ROA (%) 1.24 0.65 1.50 1.57 1.78
Cash & equivalents 17.0 24.1 15.0 15.0 15.0
Bank deposits 17.9 23.1 15.0 15.0 15.0
Debt securities 9.6 24.1 15.0 15.0 15.0
Equity securities (7.2) (8.9) 15.0 15.0 15.0
* Pre exceptional, pre-goodwill and fully diluted
Sources: China Life; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
13 BNP PARIBAS 8 JULY 2013
Financial statements China Life
Balance Sheet (RMB m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E
Cash & equivalents 55,985 69,452 79,870 91,850 105,628
Bank deposits 520,793 641,080 737,242 847,828 975,003
Debt securities 666,684 827,068 951,128 1,093,797 1,257,867
Equity securities 181,880 165,772 190,638 219,233 252,118
Investment properties 0 0 0 0 0
Other financial assets 63,474 81,313 93,510 107,536 123,667
Total investments 1,488,816 1,784,685 2,052,388 2,360,246 2,714,283
Tangible fixed assets 20,231 22,335 25,685 29,538 33,969
Associates 24,448 28,991 33,340 38,341 44,092
Deferred acquisition cost 0 0 0 0 0
Goodwill 0 0 0 0 0
Other intangible assets 0 0 0 0 0
Other assets 50,412 62,905 72,341 83,192 95,671
Total assets 1,583,907 1,898,916 2,183,753 2,511,316 2,888,014
Insurance reserve 1,190,486 1,375,504 1,589,502 1,793,451 2,008,646
Policyholders' deposits 69,797 66,639 77,959 100,440 129,913
Unearned premium reserve 5,698 5,955 6,881 7,764 8,696
Other reserves 3,189 3,078 3,557 4,013 4,495
Total insurance liabilities 1,269,170 1,451,176 1,677,899 1,905,669 2,151,750
Hybrid capital 0 0 0 0 0
Other liabilities 121,349 224,639 262,798 338,580 437,936
Total liabilities 1,390,519 1,675,815 1,940,696 2,244,249 2,589,685
Share capital 28,265 28,265 28,265 28,265 28,265
Reserves 163,265 192,820 212,776 236,787 268,047
Total equity 191,530 221,085 241,041 265,052 296,312
Minority interests 1,858 2,016 2,016 2,016 2,016
Total liabilities & equity 1,583,907 1,898,916 2,183,753 2,511,316 2,888,014
Per share (RMB)
Book value per share 6.78 7.82 8.53 9.38 10.48
Tangible book value per share 6.78 7.82 8.53 9.38 10.48
Growth
Total investments (%) 11.9 19.9 15.0 15.0 15.0
Total assets (%) 12.3 19.9 15.0 15.0 15.0
Total insurance liabilities (%) 16.6 14.3 15.6 13.6 12.9
Book value per share (%) (8.2) 15.4 9.0 10.0 11.8
Levarage & capital measures
Equity/assets (%) 12.1 11.6 11.0 10.6 10.3
Tangible equity/assets (%) 12.1 11.6 11.0 10.6 10.3
Solvency margin ratio (%) 0.0 0.0 0.0 0.0 0.0
Valuation 2011A 2012A 2013E 2014E 2015E
Recurring P/E (x) * 21.9 36.3 14.1 11.7 9.0
Reported P/E (x) 21.9 36.3 14.1 11.7 9.0
Dividend yield (%) 1.6 1.0 2.1 2.6 3.3
Price/book (x) 2.1 1.8 1.7 1.5 1.4
Price/tangible book (x) 2.1 1.8 1.7 1.5 1.4
Price/tangible book @ target price (x) 3.0 2.6 2.4 2.2 2.0
Price/embedded value (x) 1.4 1.2 1.0 0.9 0.8
Price/embedded value @ target price (x) 2.0 1.7 1.5 1.3 1.2
* Pre exceptional, pre-goodwill and fully diluted
Sources: China Life; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
14 BNP PARIBAS 8 JULY 2013
Financial statements Ping An Insurance
Profit and Loss (RMB m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E
Gross premium and fee 207,802 233,940 264,225 296,135 330,807
Reinsurance (10,970) (12,851) (21,759) (24,412) (27,431)
Net premium earned 196,832 221,089 242,466 271,723 303,376
Claims and benefits (55,335) (70,589) (82,401) (94,518) (108,334)
Policy acquisition cost (17,767) (20,437) (23,475) (26,429) (29,632)
Securities trading income 0 0 0 0 0
G&A cost (50,575) (68,477) (78,584) (91,249) (102,734)
Other income (78,873) (75,023) (68,539) (76,803) (87,718)
Other provisions 0 0 0 0 0
Underwriting profit (5,718) (13,437) (10,533) (17,276) (25,042)
Interest and dividend income 53,167 76,099 85,242 105,209 127,401
Capital gains/(losses) (5,020) (14,220) (3,761) (6,124) (7,590)
Dividend and interest to policyholders 0 0 0 0 0
Net investment income 48,147 61,879 81,481 99,085 119,811
Other income 9,959 15,317 15,081 17,453 19,521
Other operating costs (23,430) (31,375) (40,243) (46,583) (53,227)
Operating profit 28,958 32,384 45,786 52,680 61,063
Recurring non operating income 1,068 (46) 47 86 113
Associates 1,068 (46) (103) (109) (113)
Goodwill amortization 0 0 0 0 0
Non recurring items 0 0 0 0 0
Profit before tax 30,026 32,338 45,834 52,766 61,176
Tax (7,444) (5,588) (10,702) (12,220) (14,162)
Profit after tax 22,582 26,750 35,132 40,546 47,014
Minority interests (3,107) (6,700) (7,298) (8,634) (10,352)
Preferred dividends 0 0 0 0 0
Other items 0 0 0 0 0
Reported net profit 19,475 20,050 27,834 31,912 36,662
Non recurring items & goodwill (net) 0 0 0 0 0
Recurring net profit 19,475 20,050 27,834 31,912 36,662
Supplementary items
Embedded value 235,627 285,873 326,669 371,479 420,328
One year's new business value 16,822 15,915 16,527 17,593 18,994
Per share (RMB)
Recurring EPS * 2.46 2.53 3.52 4.03 4.63
Reported EPS 2.46 2.53 3.52 4.03 4.63
DPS 0.40 0.45 0.70 0.81 0.93
Embedded value per share 30 36 41 47 53
Growth
Net premium earned (%) 30.2 12.3 9.7 12.1 11.6
Underwriting profit (%) (31.9) 135.0 (21.6) 64.0 45.0
Operating profit (%) 38.7 11.8 41.4 15.1 15.9
Reported net profit (%) 12.5 3.0 38.8 14.7 14.9
Recurring EPS (%) 8.6 3.0 38.8 14.7 14.9
Reported EPS (%) 8.6 3.0 38.8 14.7 14.9
Income breakdown
Net premium earned (%) 77.2 74.1 71.5 70.0 68.5
Net investment income (%) 18.9 20.7 24.0 25.5 27.1
Other income (%) 3.9 5.1 4.4 4.5 4.4
Operating performance
Underwriting margin (%) (2.9) (6.1) (4.3) (6.4) (8.3)
Operating margin (%) 14.71 14.65 18.88 19.39 20.13
Investment yield (%) 3.59 2.82 4.03 4.13 4.14
Effective tax rate (%) 24.8 17.3 23.3 23.2 23.2
Dividend payout on recurring profit (%) 16.3 17.8 20.0 20.0 20.0
ROE (%) 16.0 13.8 16.3 16.4 16.5
ROE - COE (%) 3.2 1.0 3.5 3.6 3.7
ROA (%) 1.31 1.04 1.12 1.11 1.14
Cash & equivalents 50.7 127.6 20.0 15.0 10.0
Bank deposits 17.1 37.3 20.0 15.0 10.0
Debt securities 31.1 10.9 20.0 15.0 10.0
Equity securities 35.4 12.6 20.0 15.0 10.0
* Pre exceptional, pre-goodwill and fully diluted
Sources: Ping An Insurance; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
15 BNP PARIBAS 8 JULY 2013
Financial statements Ping An Insurance
Balance Sheet (RMB m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E
Cash & equivalents 103,029 234,473 281,368 323,573 355,930
Bank deposits 157,977 216,941 260,329 299,379 329,316
Debt securities 689,110 763,902 916,682 1,054,185 1,159,603
Equity securities 116,985 131,773 158,128 181,847 200,031
Investment properties 9,076 14,850 17,820 20,493 22,542
Other financial assets 257,819 1,119,807 1,343,768 1,545,334 1,699,867
Total investments 1,333,996 2,481,746 2,978,095 3,424,809 3,767,290
Tangible fixed assets 16,027 17,539 21,047 24,204 26,624
Associates 11,837 9,960 11,952 13,745 15,119
Deferred acquisition cost 0 0 0 0 0
Goodwill 0 0 0 0 0
Other intangible assets 33,584 37,536 45,043 51,800 56,980
Other assets 889,980 297,485 356,982 410,529 451,582
Total assets 2,285,424 2,844,266 3,413,119 3,925,087 4,317,596
Insurance reserve 656,902 767,889 914,015 1,080,542 1,268,888
Policyholders' deposits 33,460 32,417 39,235 44,528 47,104
Unearned premium reserve 42,288 50,801 60,468 71,485 83,945
Other reserves 25,754 31,486 37,478 44,306 52,029
Total insurance liabilities 758,404 882,593 1,051,195 1,240,861 1,451,966
Hybrid capital 0 0 0 0 0
Other liabilities 1,355,678 1,752,024 2,120,486 2,406,561 2,545,809
Total liabilities 2,114,082 2,634,617 3,171,682 3,647,422 3,997,776
Share capital 7,916 7,916 7,916 7,916 7,916
Reserves 122,951 151,701 174,228 199,758 229,087
Total equity 130,867 159,617 182,144 207,674 237,003
Minority interests 40,475 50,032 59,294 69,991 82,817
Total liabilities & equity 2,285,424 2,844,266 3,413,119 3,925,087 4,317,596
Per share (RMB)
Book value per share 16.53 20.16 23.01 26.23 29.94
Tangible book value per share 12.29 15.42 17.32 19.69 22.74
Growth
Total investments (%) 50.5 86.0 20.0 15.0 10.0
Total assets (%) 95.1 24.5 20.0 15.0 10.0
Total insurance liabilities (%) 18.5 16.4 19.1 18.0 17.0
Book value per share (%) 12.8 22.0 14.1 14.0 14.1
Levarage & capital measures
Equity/assets (%) 5.7 5.6 5.3 5.3 5.5
Tangible equity/assets (%) 4.3 4.3 4.0 4.0 4.2
Solvency margin ratio (%) 0.0 0.0 0.0 0.0 0.0
Valuation 2011A 2012A 2013E 2014E 2015E
Recurring P/E (x) * 16.0 15.6 11.2 9.8 8.5
Reported P/E (x) 16.0 15.6 11.2 9.8 8.5
Dividend yield (%) 1.0 1.1 1.8 2.0 2.3
Price/book (x) 2.4 2.0 1.7 1.5 1.3
Price/tangible book (x) 3.2 2.6 2.3 2.0 1.7
Price/tangible book @ target price (x) 5.1 4.1 3.6 3.2 2.8
Price/embedded value (x) 1.3 1.1 1.0 0.8 0.7
Price/embedded value @ target price (x) 2.1 1.8 1.5 1.3 1.2
* Pre exceptional, pre-goodwill and fully diluted
Sources: Ping An Insurance; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
16 BNP PARIBAS 8 JULY 2013
Financial statements China Pacific Insurance
Profit and Loss (RMB m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E
Gross premium and fee 154,958 163,228 175,452 189,964 208,762
Reinsurance (13,384) (11,795) (16,989) (18,875) (21,058)
Net premium earned 141,574 151,433 158,463 171,088 187,704
Claims and benefits (53,325) (60,316) (74,965) (81,585) (87,796)
Policy acquisition cost 0 0 0 0 0
Securities trading income 0 0 0 0 0
G&A cost (33,120) (38,224) (42,989) (47,448) (52,402)
Other income (60,399) (62,095) (56,372) (59,362) (64,121)
Other provisions 0 0 0 0 0
Underwriting profit (5,270) (9,202) (15,863) (17,307) (16,616)
Interest and dividend income 21,199 26,618 30,367 34,222 38,068
Capital gains/(losses) (4,807) (8,558) (4,057) (3,048) (3,391)
Dividend and interest to policyholders 0 0 0 0 0
Net investment income 16,392 18,060 26,310 31,174 34,677
Other income 0 0 0 0 0
Other operating costs (1,218) (2,745) (492) (573) (652)
Operating profit 9,904 6,113 9,955 13,294 17,409
Recurring non operating income 495 0 1 0 (1)
Associates 495 0 1 0 (1)
Goodwill amortization 0 0 0 0 0
Non recurring items 0 0 0 0 0
Profit before tax 10,399 6,113 9,955 13,294 17,408
Tax (2,006) (983) (2,003) (2,676) (3,487)
Profit after tax 8,393 5,130 7,952 10,619 13,920
Minority interests (80) (53) (113) (157) (211)
Preferred dividends 0 0 0 0 0
Other items 0 0 0 0 0
Reported net profit 8,313 5,077 7,839 10,462 13,710
Non recurring items & goodwill (net) 0 0 0 0 0
Recurring net profit 8,313 5,077 7,839 10,462 13,710
Supplementary items
Embedded value 113,564 135,280 146,181 159,134 173,898
One year's new business value 6,714 7,060 7,373 7,715 8,151
Per share (RMB)
Recurring EPS * 0.97 0.56 0.87 1.15 1.51
Reported EPS 0.97 0.56 0.87 1.15 1.51
DPS 0.35 0.35 0.35 0.35 0.35
Embedded value per share 13 15 16 18 19
Growth
Net premium earned (%) 12.2 7.0 4.6 8.0 9.7
Underwriting profit (%) (40.1) 74.6 72.4 9.1 (4.0)
Operating profit (%) (7.3) (38.3) 62.8 33.6 31.0
Reported net profit (%) (2.9) (38.9) 54.4 33.5 31.0
Recurring EPS (%) (2.9) (42.0) 54.4 33.5 31.0
Reported EPS (%) (2.9) (42.0) 54.4 33.5 31.0
Income breakdown
Net premium earned (%) 89.6 89.3 85.8 84.6 84.4
Net investment income (%) 10.4 10.7 14.2 15.4 15.6
Other income (%) 0.0 0.0 0.0 0.0 0.0
Operating performance
Underwriting margin (%) (3.7) (6.1) (10.0) (10.1) (8.9)
Operating margin (%) 7.00 4.04 6.28 7.77 9.27
Investment yield (%) 3.43 3.14 3.91 4.08 4.08
Effective tax rate (%) 19.3 16.1 20.1 20.1 20.0
Dividend payout on recurring profit (%) 35.2 36.2 62.5 40.5 23.1
ROE (%) 10.6 5.9 7.9 9.8 11.9
ROE - COE (%) (1.2) (5.9) (3.9) (2.0) 0.1
ROA (%) 1.60 0.82 1.09 1.28 1.50
Cash & equivalents (0.4) 60.2 15.0 12.0 11.0
Bank deposits 28.7 19.1 15.0 12.0 11.0
Debt securities 19.4 20.3 15.0 12.0 11.0
Equity securities (2.7) 16.2 15.0 12.0 11.0
* Pre exceptional, pre-goodwill and fully diluted
Sources: CPIC; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
17 BNP PARIBAS 8 JULY 2013
Financial statements China Pacific Insurance
Balance Sheet (RMB m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E
Cash & equivalents 14,903 23,875 27,456 30,751 34,134
Bank deposits 140,953 167,897 193,082 216,251 240,039
Debt securities 269,462 324,032 372,637 417,353 463,262
Equity securities 53,573 62,263 71,602 80,195 89,016
Investment properties 6,573 6,349 7,301 8,178 9,077
Other financial assets 37,066 42,912 49,349 55,271 61,350
Total investments 522,530 627,328 721,427 807,998 896,878
Tangible fixed assets 7,833 9,364 10,769 12,061 13,388
Associates 0 0 0 0 0
Deferred acquisition cost 0 0 0 0 0
Goodwill 0 0 0 0 0
Other intangible assets 1,519 1,760 2,024 2,267 2,516
Other assets 38,730 43,050 49,507 55,448 61,548
Total assets 570,612 681,502 783,727 877,775 974,330
Insurance reserve 325,558 385,283 478,334 578,874 675,935
Policyholders' deposits 0 0 0 0 0
Unearned premium reserve 28,177 31,264 38,815 46,973 54,849
Other reserves 21,196 22,340 27,735 33,565 39,193
Total insurance liabilities 374,931 438,887 544,884 659,412 769,977
Hybrid capital 0 0 0 0 0
Other liabilities 117,626 145,046 134,499 106,729 82,181
Total liabilities 492,557 583,933 679,383 766,141 852,158
Share capital 8,600 9,062 9,062 9,062 9,062
Reserves 68,196 87,115 93,890 101,180 111,718
Total equity 76,796 96,177 102,952 110,242 120,780
Minority interests 1,259 1,392 1,392 1,392 1,392
Total liabilities & equity 570,612 681,502 783,727 877,775 974,330
Per share (RMB)
Book value per share 8.93 10.61 11.36 12.17 13.33
Tangible book value per share 8.75 10.42 11.14 11.92 13.05
Growth
Total investments (%) 20.0 20.1 15.0 12.0 11.0
Total assets (%) 19.9 19.4 15.0 12.0 11.0
Total insurance liabilities (%) 22.1 17.1 24.2 21.0 16.8
Book value per share (%) (4.4) 18.9 7.0 7.1 9.6
Levarage & capital measures
Equity/assets (%) 13.5 14.1 13.1 12.6 12.4
Tangible equity/assets (%) 13.2 13.9 12.9 12.3 12.1
Solvency margin ratio (%) 0.0 0.0 0.0 0.0 0.0
Valuation 2011A 2012A 2013E 2014E 2015E
Recurring P/E (x) * 19.9 34.3 22.2 16.6 12.7
Reported P/E (x) 19.9 34.3 22.2 16.6 12.7
Dividend yield (%) 1.8 1.8 1.8 1.8 1.8
Price/book (x) 2.1 1.8 1.7 1.6 1.4
Price/tangible book (x) 2.2 1.8 1.7 1.6 1.5
Price/tangible book @ target price (x) 3.0 2.5 2.3 2.2 2.0
Price/embedded value (x) 1.5 1.3 1.2 1.1 1.0
Price/embedded value @ target price (x) 2.0 1.7 1.6 1.5 1.4
* Pre exceptional, pre-goodwill and fully diluted
Sources: CPIC; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
18 BNP PARIBAS 8 JULY 2013
Financial statements New China Life Insurance
Profit and Loss (RMB m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E
Gross premium and fee 95,151 100,422 100,786 104,434 109,416
Reinsurance 584 386 (151) (157) (164)
Net premium earned 95,735 100,808 100,635 104,277 109,252
Claims and benefits (21,813) (23,981) (29,639) (34,067) (37,916)
Policy acquisition cost (7,317) (7,453) (7,716) (7,995) (8,376)
Securities trading income 0 0 0 0 0
G&A cost (9,428) (10,190) (11,013) (12,356) (13,895)
Other income (66,044) (68,588) (66,193) (65,867) (67,886)
Other provisions 0 0 0 0 0
Underwriting profit (8,867) (9,404) (13,926) (16,007) (18,821)
Interest and dividend income 13,659 16,408 24,804 30,025 36,030
Capital gains/(losses) (982) (3,237) (2,354) (3,748) (5,997)
Dividend and interest to policyholders 0 0 0 0 0
Net investment income 12,677 13,171 22,450 26,277 30,033
Other income 0 0 0 0 0
Other operating costs (537) (1,035) (2,203) (2,336) (2,490)
Operating profit 3,273 2,732 6,320 7,934 8,723
Recurring non operating income 2 1 5 6 7
Associates 2 1 5 6 7
Goodwill amortization 0 0 0 0 0
Non recurring items 0 0 0 0 0
Profit before tax 3,275 2,733 6,325 7,939 8,730
Tax (475) 197 (1,075) (1,350) (1,484)
Profit after tax 2,800 2,930 5,250 6,590 7,246
Minority interests (1) (2) (3) (3) (4)
Preferred dividends 0 0 0 0 0
Other items 0 0 0 0 0
Reported net profit 2,799 2,928 5,247 6,586 7,242
Non recurring items & goodwill (net) 0 0 0 0 0
Recurring net profit 2,799 2,928 5,247 6,586 7,242
Supplementary items
Embedded value 48,991 56,870 64,682 74,055 84,262
One year's new business value 4,360 4,172 4,185 4,275 4,390
Per share (RMB)
Recurring EPS * 0.90 0.94 1.68 2.11 2.32
Reported EPS 0.90 0.94 1.68 2.11 2.32
DPS 0.09 0.32 0.17 0.21 0.23
Embedded value per share 16 18 21 24 27
Growth
Net premium earned (%) 4.1 5.3 (0.2) 3.6 4.8
Underwriting profit (%) 6.4 6.1 48.1 14.9 17.6
Operating profit (%) 45.2 (16.5) 131.3 25.5 10.0
Reported net profit (%) 24.5 4.6 79.2 25.5 10.0
Recurring EPS (%) (52.1) 4.5 79.2 25.5 10.0
Reported EPS (%) (52.1) 4.5 79.2 25.5 10.0
Income breakdown
Net premium earned (%) 88.3 88.4 81.8 79.9 78.4
Net investment income (%) 11.7 11.6 18.2 20.1 21.6
Other income (%) 0.0 0.0 0.0 0.0 0.0
Operating performance
Underwriting margin (%) (9.3) (9.3) (13.8) (15.4) (17.2)
Operating margin (%) 3.42 2.71 6.28 7.61 7.98
Investment yield (%) 3.90 3.26 4.40 4.29 4.09
Effective tax rate (%) 14.5 (7.2) 17.0 17.0 17.0
Dividend payout on recurring profit (%) 10.0 34.2 10.0 10.0 10.0
ROE (%) 14.8 8.7 13.7 15.1 14.5
ROE - COE (%) - - - - -
ROA (%) 0.81 0.67 0.97 1.01 0.93
Cash & equivalents (22.9) 18.8 20.0 20.0 20.0
Bank deposits 122.7 39.8 20.0 20.0 20.0
Debt securities 15.6 22.8 20.0 20.0 20.0
Equity securities (25.3) 10.4 20.0 20.0 20.0
* Pre exceptional, pre-goodwill and fully diluted
Sources: NCI; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
19 BNP PARIBAS 8 JULY 2013
Financial statements New China Life Insurance
Balance Sheet (RMB m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E
Cash & equivalents 21,095 25,066 30,079 36,095 43,314
Bank deposits 122,949 171,853 206,224 247,468 296,962
Debt securities 190,444 233,822 280,586 336,704 404,044
Equity securities 29,051 32,085 38,502 46,202 55,443
Investment properties 451 1,635 1,962 2,354 2,825
Other financial assets 2,154 308 370 444 532
Total investments 366,144 464,769 557,723 669,267 803,121
Tangible fixed assets 4,284 4,126 4,951 5,941 7,130
Associates 709 708 850 1,020 1,223
Deferred acquisition cost 0 0 0 0 0
Goodwill 0 0 0 0 0
Other intangible assets 65 102 122 147 176
Other assets 15,569 23,988 28,786 34,543 41,451
Total assets 386,771 493,693 592,432 710,918 853,102
Insurance reserve 292,818 361,070 434,465 513,305 597,829
Policyholders' deposits 18,730 18,734 22,730 29,290 39,262
Unearned premium reserve 604 750 902 1,066 1,242
Other reserves 392 452 544 643 748
Total insurance liabilities 312,544 381,006 458,641 544,304 639,081
Hybrid capital 0 0 0 0 0
Other liabilities 42,914 76,809 93,190 120,086 160,975
Total liabilities 355,458 457,815 551,831 664,390 800,056
Share capital 3,117 3,120 3,120 3,120 3,120
Reserves 28,189 32,750 37,472 43,400 49,918
Total equity 31,306 35,870 40,592 46,520 53,038
Minority interests 7 8 8 8 8
Total liabilities & equity 386,771 493,693 592,432 710,918 853,102
Per share (RMB)
Book value per share 10.04 11.50 13.01 14.91 17.00
Tangible book value per share 10.02 11.46 12.97 14.86 16.94
Growth
Total investments (%) 27.1 26.9 20.0 20.0 20.0
Total assets (%) 27.0 27.6 20.0 20.0 20.0
Total insurance liabilities (%) 23.0 21.9 20.4 18.7 17.4
Book value per share (%) 83.5 14.5 13.2 14.6 14.0
Levarage & capital measures
Equity/assets (%) 8.1 7.3 6.9 6.5 6.2
Tangible equity/assets (%) 8.1 7.2 6.8 6.5 6.2
Solvency margin ratio (%) 0.0 0.0 0.0 0.0 0.0
Valuation 2011A 2012A 2013E 2014E 2015E
Recurring P/E (x) * 20.3 19.4 10.8 8.6 7.8
Reported P/E (x) 20.3 19.4 10.8 8.6 7.8
Dividend yield (%) 0.5 1.8 0.9 1.2 1.3
Price/book (x) 1.8 1.6 1.4 1.2 1.1
Price/tangible book (x) 1.8 1.6 1.4 1.2 1.1
Price/tangible book @ target price (x) 2.6 2.3 2.0 1.8 1.5
Price/embedded value (x) 1.2 1.0 0.9 0.8 0.7
Price/embedded value @ target price (x) 1.7 1.4 1.3 1.1 1.0
* Pre exceptional, pre-goodwill and fully diluted
Sources: NCI; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
20 BNP PARIBAS 8 JULY 2013
Financial statements Samsung Life
Profit and Loss (KRW b) Year Ending Mar 2011A 2012A 2013E 2014E 2015E
Gross premium and fee 14,589 14,726 22,195 16,325 16,603
Reinsurance (22) (16) (18) (16) (16)
Net premium earned 14,568 14,710 22,176 16,309 16,587
Claims and benefits (7,706) (7,197) (9,052) (6,853) (7,198)
Policy acquisition cost (3,331) (3,465) (3,803) (3,267) (3,334)
Securities trading income (1,856) (1,840) (2,045) (1,958) (1,867)
G&A cost (3) (1) 0 0 0
Other income 0 0 0 0 0
Other provisions 0 0 0 0 0
Underwriting profit 1,671 2,207 7,277 4,231 4,188
Interest and dividend income 7,818 6,784 6,898 7,113 7,745
Capital gains/(losses) 0 0 0 0 0
Dividend and interest to policyholders (835) (1,093) (1,145) (1,159) (1,278)
Net investment income 6,982 5,691 5,754 5,954 6,467
Other income 0 0 0 0 0
Other operating costs (7,009) (7,342) (12,403) (9,048) (9,128)
Operating profit 1,644 556 628 1,137 1,527
Recurring non operating income 966 620 650 529 461
Associates 0 0 0 0 0
Goodwill amortization 0 0 0 0 0
Non recurring items 0 0 0 0 0
Profit before tax 2,610 1,176 1,278 1,666 1,988
Tax (685) (229) (287) (403) (481)
Profit after tax 1,925 947 991 1,262 1,507
Minority interests 0 0 0 0 0
Preferred dividends 0 0 0 0 0
Other items 0 0 0 0 0
Reported net profit 1,925 947 991 1,262 1,507
Non recurring items & goodwill (net) 0 0 0 0 0
Recurring net profit 1,925 947 991 1,262 1,507
Supplementary items
Embedded value 15,707 18,123 21,097 22,070 23,358
One year's new business value 1,021 1,080 1,134 1,179 1,227
Per share (KRW)
Recurring EPS * 9,624 4,737 4,956 6,312 7,533
Reported EPS 9,624 4,737 4,956 6,312 7,533
DPS 2,000 1,970 1,970 2,463 2,660
Embedded value per share 78,533 90,613 105,483 110,351 116,788
Growth
Net premium earned (%) 0.5 1.0 50.8 (26.5) 1.7
Underwriting profit (%) (599.3) 32.1 229.7 (41.8) (1.0)
Operating profit (%) 435.2 (66.1) 12.8 81.1 34.3
Reported net profit (%) 112.4 (50.8) 4.6 27.4 19.3
Recurring EPS (%) 112.4 (50.8) 4.6 27.4 19.3
Reported EPS (%) 112.4 (50.8) 4.6 27.4 19.3
Income breakdown
Net premium earned (%) 67.6 72.1 79.4 73.3 71.9
Net investment income (%) 32.4 27.9 20.6 26.7 28.1
Other income (%) 0.0 0.0 0.0 0.0 0.0
Operating performance
Underwriting margin (%) 11.5 15.0 32.8 25.9 25.2
Operating margin (%) 11.28 3.78 2.83 6.97 9.20
Investment yield (%) 6.38 4.68 4.35 4.18 4.24
Effective tax rate (%) 26.2 19.5 22.4 24.2 24.2
Dividend payout on recurring profit (%) 20.8 41.6 39.7 39.0 35.3
ROE (%) 14.0 5.7 5.2 6.2 7.1
ROE - COE (%) 2.2 (6.1) (6.6) (5.6) (4.7)
ROA (%) 1.38 0.62 0.59 0.69 0.77
Cash & equivalents 26.0 (33.2) 17.7 9.8 7.4
Bank deposits - - - - -
Debt securities 13.4 13.2 8.6 7.7 7.0
Equity securities 19.4 21.3 4.4 7.0 6.9
* Pre exceptional, pre-goodwill and fully diluted
Sources: Samsung Life; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
21 BNP PARIBAS 8 JULY 2013
Financial statements Samsung Life
Balance Sheet (KRW b) Year Ending Mar 2011A 2012A 2013E 2014E 2015E
Cash & equivalents 4,467 2,986 3,514 3,858 4,144
Bank deposits 0 0 0 0 0
Debt securities 69,472 78,639 85,382 91,927 98,379
Equity securities 15,319 18,586 19,410 20,772 22,210
Investment properties 5,198 5,713 6,007 6,425 6,869
Other financial assets 24,201 24,348 25,732 27,567 29,486
Total investments 118,656 130,272 140,046 150,549 161,088
Tangible fixed assets 1,538 1,705 1,852 2,105 2,414
Associates 0 0 0 0 0
Deferred acquisition cost 3,850 3,984 4,063 4,000 4,043
Goodwill 0 0 0 0 0
Other intangible assets 106 188 190 191 191
Other assets 22,204 24,872 28,241 32,161 36,545
Total assets 146,354 161,022 174,393 189,006 204,280
Insurance reserve 99,133 106,656 113,826 125,375 134,574
Policyholders' deposits 0 0 0 0 0
Unearned premium reserve 0 0 0 0 0
Other reserves 0 0 0 0 0
Total insurance liabilities 99,133 106,656 113,826 125,375 134,574
Hybrid capital 0 0 0 0 0
Other liabilities 31,830 36,304 40,519 42,814 47,914
Total liabilities 130,964 142,959 154,346 168,189 182,488
Share capital 100 100 100 100 100
Reserves 15,290 17,963 19,947 20,717 21,692
Total equity 15,390 18,063 20,047 20,817 21,792
Minority interests 0 0 0 0 0
Total liabilities & equity 146,354 161,022 174,393 189,006 204,280
Per share (KRW)
Book value per share 76,950 90,315 100,235 104,085 108,959
Tangible book value per share 57,174 69,452 78,969 83,131 87,791
Growth
Total investments (%) 10.7 9.8 7.5 7.5 7.0
Total assets (%) 10.0 10.0 8.3 8.4 8.1
Total insurance liabilities (%) 7.7 7.6 6.7 10.1 7.3
Book value per share (%) 26.8 17.4 11.0 3.8 4.7
Levarage & capital measures
Equity/assets (%) 10.5 11.2 11.5 11.0 10.7
Tangible equity/assets (%) 7.8 8.6 9.1 8.8 8.6
Solvency margin ratio (%) 0.0 0.0 0.0 0.0 0.0
Valuation 2011A 2012A 2013E 2014E 2015E
Recurring P/E (x) * 11.0 22.3 21.3 16.7 14.0
Reported P/E (x) 11.0 22.3 21.3 16.7 14.0
Dividend yield (%) 1.9 1.9 1.9 2.3 2.5
Price/book (x) 1.4 1.2 1.1 1.0 1.0
Price/tangible book (x) 1.8 1.5 1.3 1.3 1.2
Price/tangible book @ target price (x) 2.2 1.8 1.6 1.5 1.5
Price/embedded value (x) 1.3 1.2 1.0 1.0 0.9
Price/embedded value @ target price (x) 1.6 1.4 1.2 1.2 1.1
* Pre exceptional, pre-goodwill and fully diluted
Sources: Samsung Life; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
22 BNP PARIBAS 8 JULY 2013
Financial statements Hanwha Life
Profit and Loss (KRW b) Year Ending Mar 2011A 2012A 2013E 2014E 2015E
Gross premium and fee 6,731 7,005 9,584 7,309 7,573
Reinsurance (14) (11) (12) (10) (10)
Net premium earned 6,718 6,994 9,572 7,298 7,562
Claims and benefits (3,545) (3,206) (3,718) (3,060) (3,250)
Policy acquisition cost (1,825) (1,982) (2,166) (1,834) (1,899)
Securities trading income (1,097) (1,079) (1,144) (1,143) (1,099)
G&A cost (3) (3) (3) (3) (3)
Other income 0 0 0 0 0
Other provisions 0 0 0 0 0
Underwriting profit 248 723 2,541 1,258 1,311
Interest and dividend income 2,930 3,146 3,197 3,449 3,791
Capital gains/(losses) 0 0 0 0 0
Dividend and interest to policyholders (334) (439) (342) (375) (401)
Net investment income 2,596 2,707 2,855 3,074 3,389
Other income 0 0 0 0 0
Other operating costs (2,909) (3,520) (5,462) (4,206) (4,452)
Operating profit (65) (90) (67) 125 248
Recurring non operating income 716 798 824 743 763
Associates 0 0 0 0 0
Goodwill amortization 0 0 0 0 0
Non recurring items 0 0 0 0 0
Profit before tax 651 707 757 868 1,011
Tax (170) (173) (179) (210) (245)
Profit after tax 481 534 579 658 766
Minority interests 0 0 0 0 0
Preferred dividends 0 0 0 0 0
Other items 0 0 0 0 0
Reported net profit 481 534 579 658 766
Non recurring items & goodwill (net) 0 0 0 0 0
Recurring net profit 481 534 579 658 766
Supplementary items
Embedded value 6,695 6,894 7,043 7,208 7,641
One year's new business value 427 457 456 473 496
Per share (KRW)
Recurring EPS * 554 615 666 757 882
Reported EPS 554 615 666 757 882
DPS 230 230 230 250 280
Embedded value per share 7,709 7,938 8,109 8,300 8,797
Growth
Net premium earned (%) 2.9 4.1 36.9 (23.8) 3.6
Underwriting profit (%) (230.2) 191.4 251.4 (50.5) 4.2
Operating profit (%) (65.8) 38.7 (25.5) (286.5) 97.9
Reported net profit (%) 15.1 10.9 8.3 13.7 16.5
Recurring EPS (%) 15.1 10.9 8.3 13.7 16.5
Reported EPS (%) 15.1 10.9 8.3 13.7 16.5
Income breakdown
Net premium earned (%) 72.1 72.1 77.0 70.4 69.1
Net investment income (%) 27.9 27.9 23.0 29.6 30.9
Other income (%) 0.0 0.0 0.0 0.0 0.0
Operating performance
Underwriting margin (%) 3.7 10.3 26.5 17.2 17.3
Operating margin (%) (0.97) (1.29) (0.70) 1.72 3.28
Investment yield (%) 5.86 5.63 5.46 5.37 5.39
Effective tax rate (%) 26.0 24.5 23.6 24.2 24.2
Dividend payout on recurring profit (%) 41.5 37.4 34.5 33.0 31.7
ROE (%) 8.1 8.4 8.7 9.3 10.1
ROE - COE (%) (0.5) (0.2) 0.0 0.7 1.5
ROA (%) 0.78 0.81 0.81 0.84 0.89
Cash & equivalents (9.1) 172.7 (16.7) 4.2 9.2
Bank deposits - - - - -
Debt securities 6.8 3.2 12.4 10.6 10.1
Equity securities 164.8 (54.8) 9.4 10.4 10.2
* Pre exceptional, pre-goodwill and fully diluted
Sources: Hanwha Life; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
23 BNP PARIBAS 8 JULY 2013
Financial statements Hanwha Life
Balance Sheet (KRW b) Year Ending Mar 2011A 2012A 2013E 2014E 2015E
Cash & equivalents 1,593 4,344 3,617 3,767 4,114
Bank deposits 0 0 0 0 0
Debt securities 28,669 29,600 33,280 36,813 40,519
Equity securities 1,354 612 670 739 814
Investment properties 2,257 3,379 3,955 4,826 5,844
Other financial assets 13,487 13,627 14,423 15,394 16,402
Total investments 47,361 51,562 55,945 61,540 67,693
Tangible fixed assets 955 792 811 856 914
Associates 0 0 0 0 0
Deferred acquisition cost 2,299 2,418 2,444 2,382 2,402
Goodwill 0 0 0 0 0
Other intangible assets 37 67 67 67 67
Other assets 13,069 14,022 15,091 16,949 18,897
Total assets 63,721 68,861 74,358 81,793 89,973
Insurance reserve 43,379 46,937 50,573 54,138 57,884
Policyholders' deposits 0 0 0 0 0
Unearned premium reserve 0 0 0 0 0
Other reserves 0 0 0 0 0
Total insurance liabilities 43,379 46,937 50,573 54,138 57,884
Hybrid capital 0 0 0 0 0
Other liabilities 14,176 15,427 16,927 20,351 24,253
Total liabilities 57,555 62,364 67,500 74,489 82,138
Share capital 4,343 4,343 4,343 4,343 4,343
Reserves 1,823 2,155 2,515 2,962 3,493
Total equity 6,165 6,497 6,857 7,305 7,835
Minority interests 0 0 0 0 0
Total liabilities & equity 63,721 68,861 74,358 81,793 89,973
Per share (KRW)
Book value per share 7,099 7,481 7,896 8,411 9,021
Tangible book value per share 4,410 4,620 5,005 5,591 6,179
Growth
Total investments (%) 7.9 8.9 8.5 10.0 10.0
Total assets (%) 8.0 8.1 8.0 10.0 10.0
Total insurance liabilities (%) 7.2 8.2 7.7 7.0 6.9
Book value per share (%) 8.5 5.4 5.5 6.5 7.3
Levarage & capital measures
Equity/assets (%) 9.7 9.4 9.2 8.9 8.7
Tangible equity/assets (%) 6.0 5.8 5.8 5.9 6.0
Solvency margin ratio (%) 0.0 0.0 0.0 0.0 0.0
Valuation 2011A 2012A 2013E 2014E 2015E
Recurring P/E (x) * 12.1 10.9 10.0 8.8 7.6
Reported P/E (x) 12.1 10.9 10.0 8.8 7.6
Dividend yield (%) 3.4 3.4 3.4 3.7 4.2
Price/book (x) 0.9 0.9 0.8 0.8 0.7
Price/tangible book (x) 1.5 1.4 1.3 1.2 1.1
Price/tangible book @ target price (x) 2.0 1.9 1.8 1.6 1.4
Price/embedded value (x) 0.9 0.8 0.8 0.8 0.8
Price/embedded value @ target price (x) 1.2 1.1 1.1 1.1 1.0
* Pre exceptional, pre-goodwill and fully diluted
Sources: Hanwha Life; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
24 BNP PARIBAS 8 JULY 2013
Financial statements Samsung F&M
Profit and Loss (KRW b) Year Ending Mar 2011A 2012A 2013E 2014E 2015E
Gross premium and fee 12,771 14,585 16,990 19,048 21,296
Reinsurance (910) (905) (1,055) (1,238) (1,448)
Net premium earned 11,861 13,679 15,934 17,810 19,848
Claims and benefits (9,693) (11,510) (13,657) (15,039) (16,684)
Policy acquisition cost (1,241) (1,362) (1,516) (1,698) (1,883)
Securities trading income - - - - -
G&A cost (1,198) (1,068) (1,207) (1,373) (1,513)
Other income 0 0 0 0 0
Other provisions (55) 0 0 0 0
Underwriting profit (327) (260) (445) (299) (234)
Interest and dividend income 1,422 1,604 1,777 2,075 2,387
Capital gains/(losses) (173) (243) (258) (263) (281)
Dividend and interest to policyholders 0 0 0 0 0
Net investment income 1,249 1,361 1,519 1,813 2,106
Other income 0 0 0 0 0
Other operating costs - - - - -
Operating profit 922 1,101 1,074 1,513 1,872
Recurring non operating income (33) (43) (43) (43) (43)
Associates 0 0 0 0 0
Goodwill amortization 0 0 0 0 0
Non recurring items 0 0 0 0 0
Profit before tax 888 1,058 1,031 1,470 1,829
Tax (223) (273) (237) (356) (443)
Profit after tax 665 785 794 1,114 1,386
Minority interests 0 0 0 0 0
Preferred dividends 0 0 0 0 0
Other items 0 0 0 0 0
Reported net profit 665 785 794 1,114 1,386
Non recurring items & goodwill (net) 0 0 0 0 0
Recurring net profit 665 785 794 1,114 1,386
Supplementary items
Embedded value 9,549 10,834 11,931 13,263 14,888
One year's new business value 668 696 786 904 1,040
Per share (KRW)
Recurring EPS * 13,148 15,515 15,707 22,034 27,413
Reported EPS 13,148 15,515 15,707 22,034 27,413
DPS 3,750 3,750 4,000 4,155 5,138
Embedded value per share 188,837 214,244 235,943 262,287 294,429
Growth
Net premium earned (%) 19.6 15.3 16.5 11.8 11.4
Underwriting profit (%) 14.7 (20.3) 71.0 (32.8) (22.0)
Operating profit (%) 27.2 19.4 (2.5) 41.0 23.7
Reported net profit (%) 26.8 18.0 1.2 40.3 24.4
Recurring EPS (%) 26.8 18.0 1.2 40.3 24.4
Reported EPS (%) 26.8 18.0 1.2 40.3 24.4
Income breakdown
Net premium earned (%) 90.5 91.0 91.3 90.8 90.4
Net investment income (%) 9.5 9.0 8.7 9.2 9.6
Other income (%) 0.0 0.0 0.0 0.0 0.0
Operating performance
Underwriting margin (%) (2.8) (1.9) (2.8) (1.7) (1.2)
Operating margin (%) 7.77 8.05 6.74 8.50 9.43
Investment yield (%) 5.16 4.69 4.37 4.51 4.62
Effective tax rate (%) 25.2 25.8 22.9 24.2 24.2
Dividend payout on recurring profit (%) 28.5 24.2 25.5 18.9 18.7
ROE (%) 12.4 11.6 9.9 12.6 14.0
ROE - COE (%) 2.0 1.2 (0.5) 2.2 3.6
ROA (%) 2.28 2.23 1.91 2.37 2.65
Cash & equivalents 13.8 181.3 35.4 14.7 13.5
Bank deposits - - - - -
Debt securities 17.8 15.2 20.6 13.8 13.5
Equity securities 17.7 32.6 10.7 12.3 13.3
* Pre exceptional, pre-goodwill and fully diluted
Sources: Samsung F&M; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
25 BNP PARIBAS 8 JULY 2013
Financial statements Samsung F&M
Balance Sheet (KRW b) Year Ending Mar 2011A 2012A 2013E 2014E 2015E
Cash & equivalents 345 971 1,315 1,508 1,712
Bank deposits - - - - -
Debt securities 16,246 18,717 22,580 25,690 29,149
Equity securities 2,276 3,018 3,341 3,753 4,252
Investment properties 1,100 1,271 1,446 1,630 1,848
Other financial assets 6,957 8,512 9,811 11,080 12,563
Total investments 26,924 32,489 38,493 43,662 49,525
Tangible fixed assets 48 75 81 84 87
Associates 0 0 0 0 0
Deferred acquisition cost 0 0 0 0 0
Goodwill 0 0 0 0 0
Other intangible assets 72 144 156 161 166
Other assets 4,544 5,913 5,667 5,526 5,401
Total assets 31,588 38,621 44,397 49,434 55,179
Insurance reserve 1,188 0 0 0 0
Policyholders' deposits 21,655 27,131 31,928 35,935 40,445
Unearned premium reserve - - - - -
Other reserves 0 0 0 0 0
Total insurance liabilities 22,843 27,131 31,928 35,935 40,445
Hybrid capital - - - - -
Other liabilities 2,939 3,795 4,045 4,171 4,279
Total liabilities 25,783 30,926 35,973 40,106 44,724
Share capital 26 26 26 26 26
Reserves 5,779 7,669 8,397 9,301 10,428
Total equity 5,805 7,695 8,424 9,328 10,454
Minority interests 0 0 0 0 0
Total liabilities & equity 31,588 38,621 44,397 49,434 55,179
Per share (KRW)
Book value per share 114,766 152,142 166,554 184,434 206,709
Tangible book value per share 113,342 149,294 163,477 181,246 203,419
Growth
Total investments (%) 18.4 20.7 18.5 13.4 13.4
Total assets (%) 18.5 22.3 15.0 11.3 11.6
Total insurance liabilities (%) 18.9 18.8 17.7 12.6 12.6
Book value per share (%) 17.5 32.6 9.5 10.7 12.1
Levarage & capital measures
Equity/assets (%) 18.4 19.9 19.0 18.9 18.9
Tangible equity/assets (%) 18.1 19.6 18.6 18.5 18.6
Solvency margin ratio (%) - - - 0.0 0.0
Valuation 2011A 2012A 2013E 2014E 2015E
Recurring P/E (x) * 18.5 15.7 15.5 11.1 8.9
Reported P/E (x) 18.5 15.7 15.5 11.1 8.9
Dividend yield (%) 1.5 1.5 1.6 1.7 2.1
Price/book (x) 2.1 1.6 1.5 1.3 1.2
Price/tangible book (x) 2.1 1.6 1.5 1.3 1.2
Price/tangible book @ target price (x) 2.3 1.7 1.6 1.4 1.3
Price/embedded value (x) 1.3 1.1 1.0 0.9 0.8
Price/embedded value @ target price (x) 1.4 1.2 1.1 1.0 0.9
* Pre exceptional, pre-goodwill and fully diluted
Sources: Samsung F&M; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
26 BNP PARIBAS 8 JULY 2013
Financial statements Fubon FHC
Profit and Loss (TWD m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E
Gross premium and fee 344,228 411,376 321,293 368,788 418,194
Reinsurance 0 0 0 0 0
Net premium earned 344,228 411,376 321,293 368,788 418,194
Claims and benefits (183,074) (129,617) (124,751) (136,581) (152,312)
Policy acquisition cost 0 0 0 0 0
Securities trading income 0 0 0 0 0
G&A cost (22,477) (24,301) (26,924) (27,640) (28,601)
Other income (164,803) (294,134) (215,104) (250,549) (285,940)
Other provisions (902) 612 (2,582) (2,063) (2,396)
Underwriting profit (27,028) (36,064) (48,068) (48,046) (51,056)
Interest and dividend income 61,000 66,131 68,974 73,850 79,058
Capital gains/(losses) 26,100 26,638 28,448 29,343 31,320
Dividend and interest to policyholders 0 0 0 0 0
Net investment income 87,099 92,770 97,422 103,193 110,378
Other income 0 16,818 0 0 0
Other operating costs (24,263) (40,121) (18,819) (19,571) (23,164)
Operating profit 35,809 33,403 30,535 35,576 36,158
Recurring non operating income 0 0 0 0 0
Associates 0 0 0 0 0
Goodwill amortization 0 0 0 0 0
Non recurring items 0 0 0 0 0
Profit before tax 35,809 33,403 30,535 35,576 36,158
Tax (5,122) (4,420) (3,086) (3,048) (3,030)
Profit after tax 30,687 28,983 27,449 32,528 33,128
Minority interests (144) 0 0 0 0
Preferred dividends 0 0 0 0 0
Other items 0 0 0 0 0
Reported net profit 30,543 28,983 27,449 32,528 33,128
Non recurring items & goodwill (net) 0 0 0 0 0
Recurring net profit 30,543 28,983 27,449 32,528 33,128
Supplementary items
Embedded value 176,000 217,900 260,653 297,903 335,250
One year's new business value 28,000 31,700 33,155 34,639 36,197
Per share (TWD)
Recurring EPS * 3.48 3.13 2.88 3.41 3.48
Reported EPS 3.48 3.13 2.88 3.41 3.48
DPS 0.95 0.95 1.00 1.30 1.54
Embedded value per share 20 23 27 31 35
Growth
Net premium earned (%) (21.5) 19.5 (21.9) 14.8 13.4
Underwriting profit (%) 1.5 33.4 33.3 0.0 6.3
Operating profit (%) 54.7 (6.7) (8.6) 16.5 1.6
Reported net profit (%) 53.4 (5.1) (5.3) 18.5 1.8
Recurring EPS (%) 45.7 (10.1) (7.8) 18.5 1.8
Reported EPS (%) 45.7 (10.1) (7.8) 18.5 1.8
Income breakdown
Net premium earned (%) 79.8 79.0 76.7 78.1 79.1
Net investment income (%) 20.2 17.8 23.3 21.9 20.9
Other income (%) 0.0 3.2 0.0 0.0 0.0
Operating performance
Underwriting margin (%) (7.9) (8.8) (15.0) (13.0) (12.2)
Operating margin (%) 10.40 8.12 9.50 9.65 8.65
Investment yield (%) 0.00 0.00 0.00 0.00 0.00
Effective tax rate (%) 14.3 13.2 10.1 8.6 8.4
Dividend payout on recurring profit (%) 39.9 27.3 32.0 45.0 45.0
ROE (%) 13.5 10.8 8.9 10.3 10.2
ROE - COE (%) 5.3 2.5 0.6 2.0 1.9
ROA (%) 0.87 0.75 0.65 0.73 0.69
Cash & equivalents 34.1 (21.0) 8.2 8.1 8.0
Bank deposits (25.3) (5.4) 2.0 1.5 1.2
Debt securities - - - - -
Equity securities - - - - -
* Pre exceptional, pre-goodwill and fully diluted
Sources: Fubon FHC; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
27 BNP PARIBAS 8 JULY 2013
Financial statements Fubon FHC
Balance Sheet (TWD m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E
Cash & equivalents 218,465 172,506 186,696 201,811 217,986
Bank deposits 78,798 74,518 76,013 77,178 78,121
Debt securities 0 0 0 0 0
Equity securities 0 0 0 0 0
Investment properties 0 0 0 0 0
Other financial assets 2,577,850 2,982,485 3,165,581 3,362,608 3,573,900
Total investments 2,875,114 3,229,509 3,428,290 3,641,597 3,870,007
Tangible fixed assets 32,517 33,745 34,596 35,443 36,307
Associates 3,605 4,691 4,926 5,173 5,432
Deferred acquisition cost 0 0 0 0 0
Goodwill 9,503 9,503 9,503 9,503 9,503
Other intangible assets 4,303 4,001 4,057 4,108 4,156
Other assets 693,095 801,808 863,007 924,165 989,039
Total assets 3,618,135 4,083,257 4,344,379 4,619,989 4,914,442
Insurance reserve 1,390,021 1,676,750 1,878,590 2,113,564 2,381,623
Policyholders' deposits 0 0 0 0 0
Unearned premium reserve 20,613 22,816 23,172 23,587 24,132
Other reserves 37,658 33,706 23,808 15,752 7,347
Total insurance liabilities 1,448,292 1,733,272 1,925,570 2,152,902 2,413,102
Hybrid capital 0 0 0 0 0
Other liabilities 1,936,161 2,044,712 2,107,385 2,145,746 2,172,870
Total liabilities 3,384,453 3,777,983 4,032,955 4,298,648 4,585,973
Share capital 90,137 95,269 95,269 95,269 95,269
Reserves 143,545 210,004 216,155 226,071 233,200
Total equity 233,683 305,273 311,424 321,340 328,470
Minority interests 0 0 0 0 0
Total liabilities & equity 3,618,135 4,083,257 4,344,379 4,619,989 4,914,442
Per share (TWD)
Book value per share 25.93 32.04 32.69 33.73 34.48
Tangible book value per share 24.39 30.63 31.27 32.30 33.04
Growth
Total investments (%) 7.0 12.3 6.2 6.2 6.3
Total assets (%) 4.9 12.9 6.4 6.3 6.4
Total insurance liabilities (%) 6.5 19.7 11.1 11.8 12.1
Book value per share (%) 2.1 23.6 2.0 3.2 2.2
Levarage & capital measures
Equity/assets (%) 6.5 7.5 7.2 7.0 6.7
Tangible equity/assets (%) 6.1 7.1 6.9 6.7 6.4
Solvency margin ratio (%) 0.0 0.0 0.0 0.0 0.0
Valuation 2011A 2012A 2013E 2014E 2015E
Recurring P/E (x) * 10.8 12.1 13.1 11.0 10.8
Reported P/E (x) 10.8 12.1 13.1 11.0 10.8
Dividend yield (%) 2.5 2.5 2.7 3.4 4.1
Price/book (x) 1.5 1.2 1.2 1.1 1.1
Price/tangible book (x) 1.5 1.2 1.2 1.2 1.1
Price/tangible book @ target price (x) 1.9 1.6 1.5 1.5 1.4
Price/embedded value (x) 1.9 1.6 1.4 1.2 1.1
Price/embedded value @ target price (x) 2.4 2.1 1.7 1.5 1.3
* Pre exceptional, pre-goodwill and fully diluted
Sources: Fubon FHC; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
28 BNP PARIBAS 8 JULY 2013
Financial statements Cathay FHC
Profit and Loss (TWD m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E
Gross premium and fee 397,358 454,356 373,785 375,110 385,013
Reinsurance 0 0 0 0 0
Net premium earned 397,358 454,356 373,785 375,110 385,013
Claims and benefits (257,099) (226,998) (247,297) (257,426) (274,472)
Policy acquisition cost 0 0 0 0 0
Securities trading income 0 0 0 0 0
G&A cost (35,053) (36,949) (37,109) (37,340) (37,782)
Other income (197,428) (305,500) (227,667) (224,336) (230,129)
Other provisions 0 (3,172) (1,459) (1,879) (1,905)
Underwriting profit (92,223) (118,262) (139,748) (145,871) (159,276)
Interest and dividend income 105,055 112,816 120,208 131,135 143,157
Capital gains/(losses) (7,189) 19,569 46,430 43,101 47,386
Dividend and interest to policyholders 0 0 0 0 0
Net investment income 97,867 132,385 166,638 174,236 190,543
Other income 116,290 135,085 173,244 173,756 174,322
Other operating costs (112,316) (133,915) (168,012) (168,517) (169,936)
Operating profit 9,618 15,294 32,123 33,605 35,653
Recurring non operating income 0 0 0 0 0
Associates 0 0 0 0 0
Goodwill amortization 0 0 0 0 0
Non recurring items 0 0 0 0 0
Profit before tax 9,618 15,294 32,123 33,605 35,653
Tax 1,667 38 (4,776) (5,099) (5,339)
Profit after tax 11,285 15,331 27,347 28,505 30,315
Minority interests (156) (56) 372 372 372
Preferred dividends 0 0 0 0 0
Other items 0 0 0 0 0
Reported net profit 11,129 15,275 27,719 28,877 30,687
Non recurring items & goodwill (net) 0 0 0 0 0
Recurring net profit 11,129 15,275 27,719 28,877 30,687
Supplementary items
Embedded value 0 266,930 282,538 293,671 321,717
One year's new business value 20,787 23,622 23,004 24,070 25,217
Per share (TWD)
Recurring EPS * 1.07 1.41 2.44 2.54 2.70
Reported EPS 1.07 1.41 2.44 2.54 2.70
DPS 0.59 0.45 0.66 0.97 1.02
Embedded value per share 23 25 26 28
Growth
Net premium earned (%) (24.2) 14.3 (17.7) 0.4 2.6
Underwriting profit (%) 6.0 28.2 18.2 4.4 9.2
Operating profit (%) 306.0 59.0 110.0 4.6 6.1
Reported net profit (%) 143.2 37.3 81.5 4.2 6.3
Recurring EPS (%) 143.2 30.8 73.4 4.2 6.3
Reported EPS (%) 132.8 30.8 73.4 4.2 6.3
Income breakdown
Net premium earned (%) 65.0 62.9 52.4 51.9 51.3
Net investment income (%) 16.0 18.3 23.3 24.1 25.4
Other income (%) 19.0 18.7 24.3 24.0 23.2
Operating performance
Underwriting margin (%) (23.2) (26.0) (37.4) (38.9) (41.4)
Operating margin (%) 2.42 3.37 8.59 8.96 9.26
Investment yield (%) 0.00 0.00 0.00 0.00 0.00
Effective tax rate (%) (17.3) (0.2) 14.9 15.2 15.0
Dividend payout on recurring profit (%) 133.1 41.6 46.7 40.0 40.0
ROE (%) 5.1 6.6 10.7 10.3 10.2
ROE - COE (%) (3.9) (2.4) 1.6 1.3 1.2
ROA (%) 0.23 0.29 0.48 0.47 0.46
Cash & equivalents 12.9 (2.7) 8.7 8.2 7.8
Bank deposits (11.8) 19.2 4.7 4.0 3.3
Debt securities - - - - -
Equity securities - - - - -
* Pre exceptional, pre-goodwill and fully diluted
Sources: Cathay FHC; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
29 BNP PARIBAS 8 JULY 2013
Financial statements Cathay FHC
Balance Sheet (TWD m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E
Cash & equivalents 726,749 707,482 769,156 832,295 896,946
Bank deposits 87,407 104,176 109,037 113,358 117,062
Debt securities 0 0 0 0 0
Equity securities 0 0 0 0 0
Investment properties 0 0 0 0 0
Other financial assets 2,935,308 2,976,452 3,202,076 3,452,526 3,730,322
Total investments 3,749,465 3,788,110 4,080,269 4,398,179 4,744,330
Tangible fixed assets 38,606 48,821 52,066 55,389 58,793
Associates 1,288 1,146 2,241 3,404 4,646
Deferred acquisition cost 0 0 0 0 0
Goodwill 8,263 8,571 8,571 8,571 8,571
Other intangible assets 1,430 1,163 1,535 1,870 2,163
Other assets 1,206,352 1,592,570 1,737,417 1,896,875 2,072,436
Total assets 5,005,403 5,440,382 5,882,099 6,364,289 6,890,939
Insurance reserve 2,697,469 2,993,462 3,213,842 3,430,676 3,653,132
Policyholders' deposits 0 0 0 0 0
Unearned premium reserve 21,175 22,176 23,643 25,310 27,048
Other reserves 37,058 36,392 38,944 41,686 44,533
Total insurance liabilities 2,755,702 3,052,030 3,276,429 3,497,672 3,724,713
Hybrid capital 0 0 0 0 0
Other liabilities 2,031,989 2,134,688 2,332,639 2,572,801 2,850,436
Total liabilities 4,787,691 5,186,718 5,609,068 6,070,473 6,575,149
Share capital 103,575 113,733 113,733 113,733 113,733
Reserves 110,086 136,179 155,547 176,331 198,305
Total equity 213,661 249,912 269,280 290,064 312,038
Minority interests 4,051 3,752 3,752 3,752 3,752
Total liabilities & equity 5,005,403 5,440,382 5,882,099 6,364,289 6,890,939
Per share (TWD)
Book value per share 20.63 21.97 23.68 25.50 27.44
Tangible book value per share 19.69 21.12 22.79 24.59 26.49
Growth
Total investments (%) 4.4 1.0 7.7 7.8 7.9
Total assets (%) 6.7 8.7 8.1 8.2 8.3
Total insurance liabilities (%) 7.9 10.8 7.4 6.8 6.5
Book value per share (%) (4.2) 6.5 7.7 7.7 7.6
Levarage & capital measures
Equity/assets (%) 4.3 4.6 4.6 4.6 4.5
Tangible equity/assets (%) 4.1 4.4 4.4 4.4 4.4
Solvency margin ratio (%) 0.0 0.0 0.0 0.0 0.0
Valuation 2011A 2012A 2013E 2014E 2015E
Recurring P/E (x) * 37.4 28.6 16.5 15.8 14.9
Reported P/E (x) 37.4 28.6 16.5 15.8 14.9
Dividend yield (%) 1.5 1.1 1.6 2.4 2.5
Price/book (x) 1.9 1.8 1.7 1.6 1.5
Price/tangible book (x) 2.0 1.9 1.8 1.6 1.5
Price/tangible book @ target price (x) 2.0 1.9 1.8 1.6 1.5
Price/embedded value (x) - 1.7 1.6 1.6 1.4
Price/embedded value @ target price (x) - 1.7 1.6 1.5 1.4
* Pre exceptional, pre-goodwill and fully diluted
Sources: Cathay FHC; BNP Paribas estimates
Asia Insurance sector Dominic Chan, CFA
30 BNP PARIBAS 8 JULY 2013
History of change in investment rating and/or target price
AIA (1299 HK)
Dominic Chan started covering this stock from 28-Aug-2012 Price and TP are in local currency
Valuation and risks: Our target price is based on actuarial appraisal value. The key risk to our TP is Asia corporate credit risk.
Sources: Bloomberg; BNP Paribas
China Life (2628 HK)
Ling Tang started covering this stock from 21-Aug-2012 Price and TP are in local currency
Valuation and risks: We apply a 12.5x multiple on 2013E adjusted VNB (EV/VNB adjusted 11%/14% to reflect a conservative investment yield), using a 3-stage DDM, to derive our TP. Downside risk is maturity payment in 2013.
Sources: Bloomberg; BNP Paribas
Ping An Insurance (2318 HK)
Ling Tang started covering this stock from 02-May-2013 Price and TP are in local currency
Valuation and risks: Downside risk to our SOTP-based target price is a weaker than expected A-share market.
Sources: Bloomberg; BNP Paribas
Date Reco TP
27-Aug-12 BUY 38.47
17.71
22.71
27.71
32.71
37.71
42.71
Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13
(HKD) AIA Target Price
Date Reco TP
2-Jul-09 REDUCE 22.69
26-Aug-09 HOLD 31.38
1-May-13 BUY 26.00
15.35
20.35
25.35
30.35
35.35
40.35
Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13
(HKD) China Life Target Price
Date Reco TP
2-Jul-09 HOLD 57.44
17-Aug-09 BUY 74.59
2-Feb-12 HOLD 66.20
1-May-13 BUY 80.00
34.00
44.00
54.00
64.00
74.00
84.00
94.00
104.00
114.00
124.00
Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13
(HKD) Ping An Insurance Target Price
Asia Insurance sector Dominic Chan, CFA
31 BNP PARIBAS 8 JULY 2013
China Pacific Insurance (2601 HK)
Ling Tang started covering this stock from 19-Jun-2013 Price and TP are in local currency
Valuation and risks: Downside risk to our EV-based TP is a worse-than-expected investment environment.
Sources: Bloomberg; BNP Paribas
New China Life Insurance (1336 HK)
Ling Tang started covering this stock from 02-May-2013 Price and TP are in local currency
Valuation and risks: Our target price is based on a VNB multiple of 5.1x, which is based on 3-stage DDM. The key downside risk is from A-share movement, as New China Life is highly sensitive to the equity market.
Sources: Bloomberg; BNP Paribas
Samsung Life (032830 KS)
Michelle Cho started covering this stock from 05-Aug-2010 Price and TP are in local currency
Valuation and risks: Downside risks to our appraisal value based TP include 1) continued volatility in the capital market, with an adverse impact on investment results; 2) aggressive BOK rate cuts; and 3) macro slowdown associated with demand destruction.
Sources: Bloomberg; BNP Paribas
Date Reco TP
15-Jan-10 BUY 39.46
18.13
23.13
28.13
33.13
38.13
43.13
Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13
(HKD) CPIC Target Price
Date Reco TP
1-May-13 BUY 33.00
19.39
24.39
29.39
34.39
39.39
Jan-12 Jul-12 Jan-13
(HKD) NCI Target Price
Date Reco TP
4-Aug-10 BUY 128,000.00
11-Feb-11 BUY 137,000.00
8-Nov-11 BUY 120,000.00
21-Jun-12 BUY 125,000.00
24-Jan-13 BUY 128,000.00
72,090
82,090
92,090
102,090
112,090
122,090
132,090
142,090
May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13
(KRW) Samsung Life Target Price
Asia Insurance sector Dominic Chan, CFA
32 BNP PARIBAS 8 JULY 2013
Hanwha Life (088350 KS)
Michelle Cho started covering this stock from 05-Aug-2010 Price and TP are in local currency
Valuation and risks: Key downside risks to our TP, based on appraisal value methodology, are 1) lower than expected premium growth; 2) aggressive base rate cuts by BOK; 3) adverse capital market backdrop which could impact asset yields.
Sources: Bloomberg; BNP Paribas
Samsung F&M (000810 KS)
Michelle Cho started covering this stock from 05-Aug-2010 Price and TP are in local currency
Valuation and risks: Key risks to our TP, derived from a mix of GGM and appraisal value methodologies, are 1) lower than expected premium growth; 2) adverse capital market backdrop which could impact asset yields; and 3) regulatory pressures to lower premiums.
Sources: Bloomberg; BNP Paribas
Fubon FHC (2881 TT)
Ling Tang started covering this stock from 02-Sep-2011 Price and TP are in local currency
Valuation and risks: Our target price is based on a SOTP valuation. The downside risk is global economic uncertainty.
Sources: Bloomberg; BNP Paribas
Date Reco TP
4-Aug-10 BUY 10,700.00
13-Feb-11 BUY 11,100.00
28-Sep-11 BUY 8,300.00
21-Jun-12 BUY 8,500.00
24-Jan-13 BUY 8,900.00
4,887
5,887
6,887
7,887
8,887
9,887
10,887
11,887
Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13
(KRW) Hanwha Life Target Price
Date Reco TP
2-Jul-09 BUY 226,000.00
4-Aug-10 BUY 249,000.00
12-Oct-10 BUY 248,000.00
30-Jan-11 BUY 288,000.00
11-May-11 BUY 291,000.00
21-Jun-12 BUY 260,000.00
151,200
171,200
191,200
211,200
231,200
251,200
271,200
291,200
311,200
Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13
(KRW) Samsung F&M Target Price
Date Reco TP
2-Jul-09 HOLD 32.02
8-Feb-10 BUY 33.56
23.32
28.32
33.32
38.32
43.32
48.32
Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13
(TWD) Fubon FHC Target Price
Asia Insurance sector Dominic Chan, CFA
33 BNP PARIBAS 8 JULY 2013
Cathay FHC (2882 TT)
Ling Tang started covering this stock from 02-Sep-2011 Price and TP are in local currency
Valuation and risks: Upside risks to our SoTP-based TP come from: better visibility of the investment environment and Cathay's investment yield improving. Downside risk includes government turning more cautious on investment-linked products.
Sources: Bloomberg; BNP Paribas
Date Reco TP
2-Jul-09 HOLD 42.39
6-Jan-11 BUY 69.61
1-Sep-11 HOLD 42.00
22.85
32.85
42.85
52.85
62.85
72.85
Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13
(TWD) Cathay FHC Target Price
Asia Insurance sector Dominic Chan, CFA
34 BNP PARIBAS 8 JULY 2013
Disclaimers and Disclosures
ANALYST(S) CERTIFICATION
Dominic Chan, CFA, BNP Paribas Securities (Asia) Ltd, +852 2825 1175, [email protected]. Ling Tang, BNP Paribas Securities (Asia) Ltd, +852 2825 1135, [email protected]. The analyst(s) or strategist(s) herein each referred to as analyst(s) named in this report certifies that (i) all views expressed in this report accurately reflect the personal view of the analyst(s) with regard to any and all of the subject securities, companies or issuers mentioned in this report; (ii) no part of the compensation of the analyst(s) was, is, or will be, directly or indirectly, relate to the specific recommendation or views expressed herein; and (iii) is not aware of any other actual or material conflicts of interest concerning any of the subject securities, companies or issuers referenced herein as of the time of this certification.
Analysts mentioned in this disclaimer are employed by a non-US affiliate of BNP Paribas Securities Corp., and are not registered/ qualified pursuant to NYSE and/ or FINRA regulations.
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Asia Insurance sector Dominic Chan, CFA
35 BNP PARIBAS 8 JULY 2013
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IMPORTANT DISCLOSURES The disclosure column in the following table lists the important disclosures applicable to each company that has been rated and/or recommended in this report:
Company Disclosure (as applicable)
AIA 2,5
China Life 5
Ping An Insurance 5
China Pacific Insurance 5
New China Life Insurance 2,5
Samsung Life
Hanwha Life
Samsung F&M
Cathay FHC
Fubon FHC
BNP Paribas represents that: 1. Within the past year, it has managed or co-managed a public offering for this company, for which it received fees. 2. It had an investment banking relationship with this company in the last 12 months. 3. It received compensation for investment banking services from this company in the last 12 months. 4. It beneficially owns 1% or more or the market capitalization of this company. 5. It makes a market in securities in respect of this company. 6. The analyst(s) or an individual who assisted in the preparation of this report (or a member of his/her household) has a financial interest position in
securities issued by this company or derivatives thereof.
Asia Insurance sector Dominic Chan, CFA
36 BNP PARIBAS 8 JULY 2013
7. The analyst (or a member of his/her household) is an officer, director, or advisory board member of this company.
Additional Disclosures Within the next three months, BNP Paribas may receive or seek compensation in connection with an investment banking relationship with one or more of the companies referenced herein.
Target price history, stock price charts, valuation and risk details, and equity rating histories applicable to each company rated in this report is available in our most recently published reports available on our website: http://eqresearch.bnpparibas.com, or you can contact the analyst named on the front of this note or your BNP Paribas representative.
All share prices are as at market close on 5 July 2013 unless otherwise stated.
RECOMMENDATION STRUCTURE
Stock Ratings Stock ratings are based on absolute upside or downside, which we define as (target price* - current price) / current price. BUY (B). The upside is 10% or more. HOLD (H). The upside or downside is less than 10%. REDUCE (R). The downside is 10% or more.
Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on market price and the formal recommendation.
* In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value.
Industry Recommendations Improving (é): The analyst expects the fundamental conditions of the sector to be positive over the next 12 months. Neutral (çè): The analyst expects the fundamental conditions of the sector to be maintained over the next 12 months. Deteriorating (ê): The analyst expects the fundamental conditions of the sector to be negative over the next 12 months.
Country (Strategy) Recommendations Overweight (O). Over the next 12 months, the analyst expects the market to score positively on two or more of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity.
Neutral (N). Over the next 12 months, the analyst expects the market to score positively on one of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity.
Underweight (U). Over the next 12 months, the analyst does not expect the market to score positively on any of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity.
RATING DISTRIBUTION (as at 5 July 2013)
Total BNP Paribas coverage universe 660 Investment Banking Relationship (%)
Buy 352 Buy 8.5
Hold 207 Hold 2.9
Reduce 101 Reduce 3.0
Should you require additional information concerning this report please contact the relevant BNP Paribas research team or the author(s) of this report.
© 2013 BNP Paribas Group