Improved P&C Re; deteriorated Primary P&C
China Re reported 1H17 results with net profit of Rmb2,954mn, up 9.5% yoy,thanks mainly to recovery in investments (+29.2% yoy). It accounted for 50%of DBe and 48% of Bloomberg consensus. P&C Re reported improvedcombined ratio (CR) at 98.7% (-0.3ppt yoy) thanks mainly to lower loss ratio (-3.9ppt to 56.3%). Domestic P&C Re business recorded slight deterioration withCR +0.1ppt to 99.6%. Ch Continent reported deteriorated CR at 98.2%(+1.0ppt) due to higher loss ratio (+1.1ppt to 53.6%). Life Re reported VNBgrowth of 43.0% yoy to Rmb1,744mn, likely attributable to the growth inprotection-type reinsurance (+37.3%). Overall, we see the result as in line, butnot enough to excite. Maintain Hold.
Key highlights as follow:
P&C Re: GWP grew 3.2% yoy on a low base (-12.9% yoy in 1H16) withdomestic motor Re GWP up 3.7% after the substantial decline of 34.1% in1H16. Underwriting profits grew 48.4% yoy to Rmb117mn thanks mainlyto overseas business (CR -5.1ppt to 92.5%) while domestic businessrecorded slight deterioration (+0.1ppt to 99.6%).
Primary P&C (Ch Continent): Underwriting profit was down 66.2% yoy toRmb156mn, resulting in CR deterioration of 1.0ppt. This is mainly due to ahigher loss ratio (+1.1ppt to 53.6%), while expense ratio improved slightlyby 0.1ppt to 44.6%.
Life Re: Life EV grew 13.2% hoh to Rmb20,602mn while Group EV was up3.6% hoh to Rmb79,262mn. VNB grew strongly at 43.0% to Rmb1,744mn Net profit by segments: Net profits was up 9.5% yoy on higherinvestments. P&C Re was down 15.0% yoy to Rmb830mn, but continuedto be the biggest contributor (27.6%), Ch Continent was down 6.6% toRmb722mn (24.1%) and Life Re was up 7.5% to Rmb687mn (22.9%). Totalinv yield improved 0.95ppt yoy to 5.7%, thanks to mainly to inv gains ofRmb1,011mn (vs. losses of Rmb349mn in 1H16)
Solvency: Group core/comprehensive solvency was down 59ppt hoh to199% due to business expansion in Life Re. P&C Re was down 2ppt hoh to207%, Life was down 35ppt to 223% on the back of higher min capitalfrom business expansion, which should recover upon business termination.Ch Continent is the only one with solvency improvement at 5ppt to 294%.