PICC Group and PICC P&C jointly hosted an investor day on Friday (Nov 7) in Shenzhen. The investor day included management presentations on 1) the development of non-auto insurance, 2) potential for overseas business expansion, and 3) a closer look at PICC Group’s online health insurance operation, including a site visit of the operating center in Shenzhen. There was also a demonstration of processes and technologies used in response to natural catastrophe events.
Management was confident of improvements in growth and underwriting results in the non-auto segments, given greater regulatory scrutiny over pricing and channel expenses. Management sees similarities between the latest reform in the non-auto insurance segment with the auto insurance reform since 2020, which led to improved profitability for the industry since 2021.
On overseas expansion, PICC P&C’s goal is to improve cooperation with Chinese enterprises that are increasing direct investment in overseas markets, especially in ASEAN, EU, and South America. Management believes revenue contribution from overseas business is likely to outpace the domestic market, and noted similar overseas expansion by insurers in developed market (e.g. Japan P&C insurers).
Overall, while short of numerical targets, the presentations and demonstration reinforced our view that PICC P&C’s superior underwriting result is backed on 1) industry-leading operation and data analytics, 2) strong internal risk controls, 3) scale advantage, and 4) an experienced management team. Improvements in non-auto underwriting results and overseas expansion, if realized, could provide profit upside in the medium term.
Details
Positive outlook in non-auto segment with enhanced regulation
Non-auto segment contribution to industry premiums has gradually increased to c.45% in FY24, from below 30% back several years ago. PICC believes greater regulatory scrutiny in non-auto industry will lead to improvements in underwriting results, similar to the positive impact on business quality and underwriting results from the previous auto insurance reform launched in 2020.
The reform will start from the commercial property, workers’ safety liability,and employers’ liability segments. PICC P&C is involved (along other industry leaders) in the setting of 1) pure risk premium, and 2) range of pricing flexibility allowed for individual insurers. Such practices could be expanded to all non-auto insurance segments, and all P&C insurers will need to re-file their product with the regulator by the end of 2026.
PICC P n &C cautiously noted that the reform could take time, before investors can see visible improvements in underwriting results. But over the medium-to-long term, the company is confident of delivering improvements in underwriting margin.
Potential impact of autonomous driving on auto insurance
Investors raised whether greater use of autonomous driving could shift some auto insurance coverage to (non-auto) liability insurance. Management noted that the regulator is working with industry association to look at the potential impact on auto insurance and potential changes needed to auto insurance to adapt to autonomous driving. But in the meantime, all robotaxi / autonomous driving pilot programs are insured under commercial auto insurance, and PICC P&C has a dominant market share in this segment.
Overseas expansion opportunities
PICC sees overseas business opportunities from 1) increase in overseas insurance coverage for Chinese enterprises, which is currently around 60%; 2) expanding product offerings, and 3) extending services provided, including channel distribution, underwriting and claims management, etc.
In terms of potential markets to expand services, company noted that ASEAN, Europe and South America countries are the near-term focus, along the path of expansion for Chinese EV manufacturers.
In recent years, PICC P&C has already gained knowledge of local risk factors in certain markets, by partnering with local insurers. In the next step, PICC P&C will look to establish branch offices, in order to expand product offerings. n Investors raised question around solvency impact of expanding overseas business, and company noted that the capital requirements are more related to the type of business conducted, and sees no concern on solvency side given the sufficient solvency position that PICC currently operates with.
Sustained high-quality development of online health insurance
Online health insurance is conducted by PICC Health under PICC Group, and has experienced very strong growth since launch in 2017, reaching Rmb178bn in FY24. PICC Health’s contribution to group profit also increased to a high of 13% in FY24, from 0% in 2017.
PICC Group believes that health insurance is likely to grow further, driven by policy supports and greater cooperation with the public healthcare service providers.
Demonstration of response to natural catastrophe events
PICC P&C showcased a real-time drill of the response process to a naturalcatastrophe event. We note that the process is well-established, including 1) continued risk identification, 2) risk mitigation measures, 3) extensive use of technology, and 4) close cooperation with local government and emergency services. We believe this was an important factor behind a more stable underwriting result in recent years, despite several large natural catastrophe events.
FY25 dividend and dividend policy
Company reiterated the target of delivering sustainable shareholders’ return in the long run with DPS growth. Payout policy is still based on accounting profit under pre-IFRS 17 accounting rules, and PICC P&C / PICC Group will maintain minimum payout of 40%/30%. Going forward, management will also take into account payout ratio under IFRS 17 profit.