Weak P&C Re business
China Re reported its 2016 results, with net profit of Rmb5,146mn (-32.1% yoyvs. ~30-35% decline in pre-announcement, implying 2H16 growth of 144.5%from a low base). Ch Continent recorded a turnaround in underwriting with thecombined ratio (CR) improving to 99.8% (from 101.3% in 2015), helped by autobusiness, which achieved the lowest CR in the past 4 years. However, P&C ReCR deteriorated by 0.3ppt yoy to 99.2% due to a higher loss ratio (+1.0ppt to62.0%). Domestic P&C reinsurance business recorded underwriting losses withCR at 100.6%, and business volume remained weak. Premium income declined26.5% yoy, dragged mainly by auto reins (GWP – 48.1% yoy with 1H16:-34.1% and 2H16: -57.5%). Final dividend was Rmb0.048/shr (+4.3% yoy,~3.0% yield). Given the lackluster results, we see lack of share price catalystsfor the stock. Maintain Hold.
Premium and underwriting performance by segment
P&C Re: Underwriting profits was down 25.1% yoy to Rmb94mn on lowerGWP and deteriorated CR. CR increased 0.3ppt to 99.2% in 2016 on higherloss ratio (+1.0ppt). This is mainly dragged by domestic business, whichrecorded 0.6ppt deterioration in CR to 100.6% on higher loss ratio (+0.2ppt)and expense ratio (+0.4ppt). Domestic P&C reinsurance business recorded a26.5% decline in GWP due to weaker demand for auto re-ins (-48.1%) due tothe implementation of C-ROSS, which lowered the capital requirement forprimary insurers and hence their need for reinsurance. International P&Creinsurance recorded a slight increase in CR (+0.3ppt to 82.7%). Primary P&C:Ch Continent recorded a turnaround in underwriting at a profit of Rmb10mnthanks mainly to 1H16 (Rmb461mn), which more than offset the losses in2H16 (Rmb-452mn). CR improved to 99.8% (-1.5ppt) thanks to a lower lossratio (-2.9ppt). Life Re: Life EV grew 0.8% yoy to Rmb18,200,m and VNB+10.9% to Rmb1,220mn.
Net profits and investments
Net profits were down 32.1% yoy to Rmb5,146mn. P&C Re was down 40.0%yoy to Rmb1,850mn, accounting for 35% of net profits (vs. 40% in 2015), LifeRe was down 45.7% (accounting for 26%, vs. 33%) and Ch Continent wasdown 8.0% (accounting for 24%, vs. 18%). Net inv yield remained stable at5.1% while total inv yield deteriorated to 5.5% (vs. 8.5% in 2015).
Capital positions
Grp core solvency recorded a decline of 71ppt yoy but remained comfortableat 258%. P&C Re was at 209% (-11ppt), Life Re at 258% (-55ppt) and ChContinent at 289% (+73ppt).