Investment Rating - The report assigns an "Overweight" rating to China Reinsurance and ZhongAn Online, while it gives a "Reduce" rating to China Taiping and Sunshine Insurance [3][21]. Core Insights - The report highlights that the investment in Chinese insurance stocks is primarily driven by three key indicators: investment asset-related risks, profit growth prospects, and dividend growth visibility [6][22]. - In a normal macroeconomic scenario, the growth rate of insurance premiums is expected to align with GDP growth, which is projected at 5% for 2025, leading to significant profit potential for small and mid-cap insurers [4][22]. - The report emphasizes that small and mid-cap insurers are likely to outperform large-cap insurers due to their potential for excess growth in underwriting profits and lower earnings volatility compared to equity fluctuations [6][22]. Summary by Sections Investment Recommendations - China Reinsurance: "Overweight" with a target price of HKD 1.4, current P/E ratio of 4x for FY2025 [3][21]. - ZhongAn Online: "Overweight" with a target price of HKD 26, current P/E ratio of 27x for FY2025 [3][21]. - China Taiping: "Reduce" with a target price of HKD 8.2, current P/E ratio of 6x for FY2025 [3][21]. - Sunshine Insurance: "Reduce" with a target price of HKD 2.1, current P/E ratio of 7x for FY2025 [3][21]. Macro Environment Analysis - In a normal macro scenario, premium growth is expected to match GDP growth, leading to a projected 14% year-on-year profit growth for small and mid-cap insurers compared to 6% for large-cap insurers [4][22]. - In a pessimistic macro scenario, small and mid-cap insurers exhibit more resilient profit growth, with a potential 27% decline in earnings if the Shanghai Composite Index drops by 10%, compared to a 45% decline for large-cap insurers [29][35]. Financial Metrics - The report notes that the current valuation multiples for China Reinsurance are significantly lower than historical averages, indicating potential for valuation recovery as business conditions improve [23][24]. - The report also highlights that over 70% of equity investments are measured at fair value through profit or loss (FVTPL), which can lead to significant earnings volatility [7][28]. Risk and Opportunity Assessment - The report suggests that the decline in bond yields is beneficial for China Reinsurance, as it may lead to increased demand for financial reinsurance contracts among smaller insurers facing capital constraints [35][36]. - The analysis indicates that the insurance sector is under pressure due to declining bond yields, which could impact the solvency ratios of life insurers, but major players have managed to maintain strong solvency through capital-raising measures [5][35].

Investment Rating - The report maintains an "Overweight" rating for the insurance industry, indicating a positive outlook for investment opportunities in the sector [82]. Core Insights - The adjustment of predetermined interest rates is expected to enhance the value of new business, with a projected decrease in the rate to 2% in the third quarter, which will lower the rigid cost of liabilities and improve product profitability [8][12]. - The expansion of long-term stock investment trials is anticipated to increase the flexibility of the asset side, with insurance companies actively seeking higher-yield risk assets to mitigate the pressure from interest rate spreads [20][27]. - There is a need for further optimization in asset-liability matching, as mismatches in duration can lead to fluctuations in net assets, particularly under the IFRS 17 standards [42][50]. - The valuation of insurance companies is primarily driven by improvements in the asset side, with the current PEV valuation level at 0.70, indicating that market valuations are below the intrinsic value of the companies [59][67]. Summary by Sections 1. Adjustment of Predetermined Interest Rates - The upper limit for the predetermined interest rate for ordinary life insurance is currently set at 2.5%, with a projected decrease to 2% in the upcoming quarter, which is expected to enhance the new business value [8][12]. - The insurance premium income for life insurance is showing signs of recovery, with a cumulative growth of 1.3% as of April 2025, marking a positive shift in the market [12][14]. 2. Expansion of Long-term Stock Investment Trials - The total scale of long-term stock investment trials has reached 222 billion, with several major insurance companies participating [25]. - The demand for high-yield risk assets is increasing as insurance companies seek to cover the rigid costs associated with liabilities [27][33]. 3. Need for Optimization in Asset-Liability Matching - The mismatch in asset and liability durations is causing volatility in net assets, necessitating better alignment to mitigate risks associated with interest rate changes [42][50]. - The average net investment yield for listed insurance companies remains around 4%, which poses challenges for long-term asset yield stabilization [50][56]. 4. Valuation Driven by Asset Side Improvements - The contribution of insurance contract services to profits is significant, with new business value expected to enhance overall performance [59][61]. - The current average PB valuation for five A-share insurance companies is 1.6, indicating a moderate valuation level compared to historical data [67][71].