CPIC recorded 8.9% YoY decline of VNB for 1H21 amid market headwinds (vs 11.7% decline of Ping An, 19% decline of China Life). We notice the agency new business momentum was better than major peers in spite of a decline in agent headcount, as the insurer continued to focus on agency business and regular pay products. The insurer also achieved double-digit growth of health insurance business, outpacing the industry average momentum in 1H21. Looking into 2H21 and 2022, we expect the new initiatives launched at the life arm to improve agent activity and increase top-up sales to existing customers. CPIC-H share is trading at 0.4x P/EV or 0.8x P/BV in FY21E. Maintain BUY.
Better-than-peers agency performance in 1H21. Agency FYP grew 18.5% YoY in 1H21, with agency FYRP (first year regular premiums) up 34%, outperforming the major peers (agency FYP -8% for China Life, +5% for Ping An). Agent productivity increased 41.6% YoY on FYP basis or up 8.9% YoY on VNB basis, and average first-year commission income rose 15.1% YoY, while the agency headcount shrank by 16% YoY (vs China Life -32% YoY, Ping An -23% YoY). Agent activity rate declined 12.4ppt YoY to 50.1%, yet still above industry average and major peers.
Agency reform focusing on activity and productivity. The management sets the agency activity as the priority for the next 6-12 months, aiming to grow the number of active agents and high-productivity agents via re- energizing the existing experienced agent base. We believe a recovery in agent activity rate will bring improvements in persistency and productivity.
To generate value via top-up sales and cross-selling. CPIC achieved positive progress on customer development in 1H21, as the number of customers expanded by 7.3% HoH to 160mn. That said, the number of policies per customer is still low at 2.1, compared to 7-9 policies per customer in some developed markets. The insurer is working to increase the profitability via cross-selling and top-up sales to existing customers.
P&C: prudent reserving. 1H21 overall combined ratio increased by 1ppt YoY to 99.3% in 1H21, slightly better than the industry average of 99.6%, but outperformed by major peers (vs Ping An 95.9% and PICC P&C 97.2%).
We notice the loss reserve as % NEP ratio was lifted up by 0.6ppt YoY.