We believe that the expected growth in China’s primary life & health andP&C insurance premiums will in turn nurture the country’s reinsurancesector. Given China’s determination to lift the country’s insurance penetrationratio to 5.0% by year 2020, this implies an estimated 17.0% CAGR in totalinsurance premiums between 2015 and 2020.
We expect a gradual recovery in China Reinsurance’s (“China Re” or“the Company”) earnings growth in 2017F and 2018F on the expectednormalised investment conditions and increased contribution fromhigher margin business lines including protection-type life andnon-motor reinsurance. Although the Company’s 1H16 earnings was hit bya significant reduction in total investment income, which it recorded a yoydrop of 59.0% in attributable profit, we project a gradual earnings recovery in2017F (~8.2%) and 2018F (~19.4%).
We initiate coverage on China Re with an initial investment rating of“Accumulate” and a target price of HKD 2.13 per share. Key investmentthesis includes: 1/ the Company’s advantageous business know-how due toits long business history in China and 2/ the Company’s strong capital basethat has enabled it to capture growth opportunities in China’s primaryinsurance market.