Insurance Sector Finally Takes Off!
Finally, the insurance sector has seen a long-awaited rally.
Say it's long-awaited, but in fact, it's only been two and a half months since the downturn. However, for investors who have been patiently waiting, time seems to be moving at a snail's pace.
Some investors may say, "Rainy days will come again? Sunshine will return after just two or three days?"
Rainy days are indeed welcome, but the key point is that we should look ahead: Is this rally just a rebound from the downward trend, or has it started a new upward cycle?
As for the insurance sector, I tend to believe in the latter: A new upward cycle has just begun, and any increase will be a continuation of the trend, while any decrease will be an opportunity to rebalance.
(1) Evaluate the safety margin through valuation
Before investing, we should first anchor our positions based on valuation. As of April 18, 2023, the insurance sector's market-to-book ratio is still at its absolute bottom position in the cycle.
Although low prices do not rule out further declines, at least from a mid-to-long-term perspective, low prices give investors a better safety margin, creating an asymmetry between returns and risks: The upside potential is large, while the downside risk is limited, making the expected return attractive.
(2) Look at the cyclical direction for fundamental trends
From a cyclical perspective, the insurance industry is currently in the early stages of a new upward cycle, with fundamental trends pointing upwards and success rates high.
For the insurance sector, the past three years have been a transformative period. The industry has faced a double whammy from declining profitability and rising costs, leading to a decline in asset quality.
On the asset side, the main driver is the decline in 10-year government bond yields and the downturn in the real estate market, which has led to a decline in insurance companies' investment returns. As of 2022, the average total investment return rate for listed insurers was only 3.78%.
Currently, on the liability side, the head companies have successively completed their agent reform, and the industry's agent numbers are expected to stabilize at a bottom level, coupled with economic growth and an expected rise in residents' income. As consumers' health awareness improves, high-value insurance products will see an increase in demand, driving insurance companies' liabilities to recover and start a new cycle of growth.
On the investment side, the capital market has entered a new bull cycle, and the real estate industry has also bottomed out, with long-term interest rates trending upwards. Insurance companies' investment returns are expected to recover and return to an upward trend.
(3) Look at short-term catalysts from market news
From the current market perspective, quarterly earnings are a crucial catalyst for stock prices. Based on data from listed insurance companies (China Pacific, China Life, China Taiping, etc.) for Q1 2023, the insurance sector's new business value NBV is likely to recover and drive stock prices higher.
Looking ahead, after three years of proactive reforms, insurance agents' quality has significantly improved. According to statistics, in 2022, the average monthly production per agent was 9,493 yuan, up 47.3% year-on-year. For 2023, offline surveys have recovered, and customers' confidence has risen, driving insurance agents' quality to continue to improve, with reform effects fully reflected, driving premium growth.
Mid-term outlook: Insurance companies will continue to strengthen their supply-side reforms, focusing on product innovation around customer needs, and insurance product penetration rates are expected to continue rising. On the one hand, as banks' financial products become more popular, savings-type insurance products with a high degree of matching between supply and demand will continue to attract attention, becoming an important medium for long-term savings and asset transfer; on the other hand, life insurers are increasingly pushing forward with "insurance + elderly care" and "insurance + medical care" transformations, creating product differences through service differentiation, achieving positive results, and driving rapid growth in the industry.
This article was first published on WeChat public account: 星图金融研究院. The content represents the author's personal opinion and does not represent Hexun.com's stance. Investors should operate based on this information at their own risk.