1H19 results in line with our forecast
China Reinsurance announced 1H19 results: Net profits increased42% YoY, in line with our expectation. The embedded and book valuesrose 6% and 5% YTD.
Trends to watch
Net profit increased 42% YoY, in line with our forecast. A strong netprofit performance was driven by the asset management businessturning around from loss to profit and better underwritingperformance of P&C Reinsurance and China Continent InsuranceCompany.
The class operating ratio COR improved 2.1ppt to 97.4% at P&C Re,due to fewer catastrophes occurring and the inclusion of the highquality businesses of Chaucer （COR at 94.2%）。 COR at domestic P&CReinsurance business remained unchanged.
Premium at Life Reinsurance delivered strong growth of 27% YOY,mainly driven by protection business and financial reinsurancebusiness.
COR at Continent Insurance improved 0.1ppt to 99.9%. Premiumsincreased 11% YoY, driven by non-auto business （e.g., A&H andcredit）。 Auto premiums declined 2% YoY, which concerns us.
Financials and valuation
As the recent fluctuation in equity market may influence company’sincome, we cut our 2019 and 2020 earnings forecasts 2% and 3% toRmb0.11 and Rmb0.14 per share.
The stock is trading at 0.6x 2019e P/EV. We maintain our NEUTRALrating. Given the falling interest yield and fluctuation in equitymarket, we cut target our price 26% to HK$1.4 （implying 0.6x 2019eP/EV） and offering 9% upside.
Risks
Unexpected catastrophes; stock market plunges.