1Q22 results miss our expectation
　　China Pacific Insurance (Group) Co. (CPIC) announced its life first-year premium (FYP) rose 22.1% YoY in 1Q22, mainly driven by bancassurance. Net profit declined 36.4% YoY, missing our expectation due to downside surprise in investment income.
　　Trends to watch
　　FYP of agent channel plunges due to a high base; agent productivity improves. The firm’s 1Q22 life FYP rose 22.1% YoY, with that of agent channel down 44.1% and that of bancassurance channel up 1,108.1% YoY on a low base. Agent channel was a main drag to the firm’s life FYP. Thanks to continued life insurance reforms, the firm’s agent productivity improved with monthly average FYP rising 19.9% YoY. In addition, 13-month policy persistency ratio rose 5.3ppt YoY to 89%.
　　Combined ratio of P&C insurance largely in line with expectation; GWP of both motor insurance and non-motor insurance outperforms peers. The combined ratio of CPIC P&C improved 0.2ppt YoY to 99.1%, with expense ratio down 2.0ppt YoY to 28.7% and loss ratio up 1.8ppt YoY to 70.4%. Gross written premium (GWP) of motor insurance and non-motor insurance rose 11.8% and 16.2% YoY in 1Q22, both outperforming peers.
　　Equity market decline weighs on net profit growth. The firm’s net profit declined 36.4% YoY in 1Q22, dragged by poor investment income. The firm’s annualized net investment yield fell 0.2ppt YoY to 3.7% and annualized gross investment yield declined 0.9ppt YoY to 3.7% due to sharp declines in the equity market. The gross and comprehensive investment yields (non-annualized) were 0.91% and -0.26% for CPIC Life, and 1.3% and -0.2% for CPIC P&C.
　　Under the China Risk-Oriented Solvency System (C-ROSS) Phase 2, CPIC Life’s core and comprehensive solvency ratios are 147% and 247%, and those of CPIC P&C are 185% and 243%. We see a low possibility of a further decline in dividend, as the firm has prudently lowered its dividend and its solvency ratio still has a margin of safety compared with the regulatory limits.
　　Financials and valuation
　　Considering the sharp volatility in capital markets in 1Q22, we trim our 2022 and 2023 EPS forecast 7.9% and 4.4% to Rmb2.95 and Rmb3.65. We maintain OUTPERFORM for both A-shares and H-shares. Based on P/EV valuation, we trim our A-share and H-share TPs 18% and 12% to Rmb31 (0.55x 2022e and 0.51x 2023e P/EV with 52% upside) and HK$29 (0.44x 2022e and 0.40x 2023e P/EV with 68% upside). CPIC A-shares are trading at 0.36x 2022e and 0.33x 2023e P/EV, and H-shares at 0.26x 2022e and 0.24x 2023e P/EV.
　　Risks
　　Disappointing FYP growth; sharp decline in long-term interest rates; sharp fluctuations in A-share market.