CPIC delivered 2.5% VNB growth YoY in 3Q22 (vs. 45.3% YoY decline in 1H22, as the insurer proactively upgraded its agency model. The momentum of both agency first-year premiums (FYP) and agency first-year regular premiums (FYRP) turned positive to 24.7% YoY and 37.5% YoY respectively in 3Q22, given enhanced agency productivity and stabilizing scale of high productivity agents. On P&C front, combined ratio decreased 1.9ppt YoY to 97.8% in 9M22 (vs. 97.9% of Ping An and 96.5% of PICC P&C), translating into approx. 1.5ppt YoY improvement in 3Q22. Group net profit increased 30% YoY in 3Q22, outperforming listed peers, thanks to the turnaround in life new business momentum and stable investment yields. Looking forward, we expect the recovery of life new business momentum to sustain in 4Q22 and 2023. We believe the recovery of life new business momentum may support valuation.
Reiterate BUY on CPIC-H.
VNB momentum turned positive in 3Q22, as the agency FYP turned positive. 3Q22 VNB growth turned positive to 2.5% YoY, narrowing the accumulative VNB decline to 37.8% YoY in 9M22 from 45.3% YoY in 1H22.
Agency FYP and FYRP grew 25%/38% YoY in 3Q22, up from the 35%/35% YoY decreases in 1H22 and 9%/6% YoY drop in 2Q22. Bancassurance and group FYP growth remained strong in 3Q22. The 13-month persistency ratio rebounded to 88.0% in 9M22 (vs 87.8% in 1H22, 80.5% in 9M21), indicating a recovery in business quality. Agency productivity and agency first-year commission both increased on a YoY basis.
P&C combined ratio improved by 1.9ppt YoY to 97.8%, with 0.6ppt YoY reduction of loss ratio and 1.3ppt YoY decline of expense ratio. We estimate underwriting margin expanded by around 1.5ppt YoY in 3Q22, likely thanks to 1) less natural catastrophe losses, 2) improved auto insurance profitability on the back of less loss events amid COVID restrictions, 3) more disciplined expense management of non-auto lines. The premiums growth of auto and non-auto segment stood at 7.6% YoY and 20.7% YoY respectively in 3Q22, both outperforming industry average.
Valuation. CPIC-H is trading at 0.2x P/EV FY23E and 0.4x P/BV FY23E, at a historical trough valuation. We believe the downside is limited, and expect the recovery of new business momentum will sustain into 4Q22 and 2023.
We think the sequential improvement in VNB growth will support share price performance. Reiterate BUY.