Shenwan Hongyuan Securities·2025-06-27 08:15Investment Rating - The report rates the insurance industry as "Overweight" indicating that it is expected to outperform the overall market [5]. Core Insights - The embedded value (EV) valuation method is unique to insurance companies, emphasizing the long-term nature of insurance contracts and the need for EV as a supplementary financial metric [2]. - Since 2021, the average P/EV of A-share listed insurance companies has dropped below 1.0x, reflecting concerns over interest margin risks, asset-side risks, and uncertainties in new business value (NBV) growth [3]. - As of June 26, 2023, the average PEV for major insurers like Ping An, New China Life, and China Life is 0.68x, indicating a recovery to levels seen in June 2021 but with significant differences in underlying assumptions [3]. - Current valuations imply investment returns that are still below actual performance, suggesting that the insurance companies are undervalued [4]. Summary by Sections Valuation Methodology - The embedded value (EV) consists of the value of in-force business (VIF) and adjusted net assets, with P/EV being the common valuation metric for life insurance companies [2]. Market Performance - The average P/EV for listed insurers as of June 26, 2023, is 0.68x, with specific companies like China Life at 0.78x and Ping An at 0.70x, indicating a significant discount compared to historical averages [3][4]. Investment Opportunities - The report suggests that the insurance sector has both fundamental and capital market catalysts, with expectations of a further reduction in the preset interest rate in Q3, which could optimize new liability costs [5]. - Recommended stocks include New China Life, China Life (H), China Pacific Insurance (H), Ping An, ZhongAn Online, and AIA [5].