Investment Rating - The investment rating for the insurance sector is as follows: China Ping An - Strong Buy, China Pacific Insurance - Buy, China Life Insurance - Buy, New China Life Insurance - Buy, China People’s Insurance - Buy [4][3] Core Viewpoints - The report emphasizes that the long-term valuation anchor for the insurance sector should focus on changes in liability management quality, with a specific analysis of break-even yields and rigid costs to assess the cost of liabilities in the industry and listed companies [9][32] - The current PEV (Price to Embedded Value) of domestic insurance companies is generally below 1x, primarily due to potential "spread loss" pressures, reflecting cautious pricing assumptions regarding investment returns [9][40] - The report predicts that the break-even yield for listed insurance companies will be significantly lower than the net investment yield, indicating that the current PEV valuation may be overly pessimistic [9][51] Summary by Sections Section 1: Introduction - The report anticipates a further reduction in the predetermined interest rate in Q3, which may be implemented within the quarter, driven by market rate adjustments [13][14] Section 2: "Spread Loss" Crisis Assessment - The report discusses the formation of "spread loss" risks, highlighting the lagging nature of the insurance cycle in relation to economic and interest rate cycles [33][34] - It notes that the average liability duration in the life insurance sector is approximately 12-13 years, while asset duration is only 6-7 years, leading to reallocation pressures during a declining interest rate environment [35][40] Section 3: Dynamic Measurement of Rigid Costs - The report provides a dynamic measurement of the rigid costs associated with existing policies, predicting a rapid decline in these costs over the next two years (2025-2026) due to adjustments in predetermined interest rates [9][27] Section 4: Investment Recommendations - The report suggests that the quality of liability management is expected to improve gradually, with a focus on the shift towards dividend insurance products, which are anticipated to alleviate overall cost pressures [25][26] - It highlights that the insurance sector is increasingly prioritizing high-dividend strategies to compensate for declining interest income, thereby stabilizing net investment yields [25][30]

Summary of China Ping An's Conference Call Company Overview - **Company**: China Ping An - **Industry**: Insurance and Financial Services Key Points Business Performance - In Q1 2025, the life insurance business reported an operating profit growth of approximately 5%, with expectations for steady performance throughout the year. Despite a decline in profits in 2023, the per-share dividend increased year-on-year, marking three consecutive years without a decrease in dividend amounts. Future net profit is expected to maintain steady growth, and dividends are anticipated to remain stable [2][5][12]. Management Changes - Recent adjustments in the life insurance management team include Shi Weiyu as the new General Manager and Cai Ting as Vice Chairman, overseeing agent and individual insurance channel development. The overall business will be led by Cai Ting, implementing a matrix management structure [2][7][8]. New Business Value (NBV) Growth - In Q1 2025, the NBV growth reached 35%, with the bancassurance channel experiencing rapid growth, accounting for over 30% of total sales. Individual insurance maintained positive growth, and the strategic adjustments in the bancassurance channel resulted in more than double growth. The strong trend in the bancassurance channel is expected to continue into Q2 [2][9][13]. Profitability and Investment Performance - The property and casualty insurance segment saw a decline in net profit in Q1 2025 due to bond losses from rising interest rates. However, with interest rates falling in Q2, this impact is expected to diminish, and underwriting improvements will drive profitability. Overall, the profit trend remains difficult to predict but is considered stable [2][14]. Dividend Policy - The dividend policy remains linked to operating profit performance, with no significant changes anticipated. The company is confident in maintaining stable dividend expectations, contingent on annual operating profit performance [2][5]. Asset Management and Investment Strategy - The asset management segment reported a net loss of approximately 12 billion in the previous year, with expectations for reduced losses this year. The group aims to maintain a stable performance in its asset management business, with a 5% growth achieved in Q1 2025 [3][17]. Future Outlook - The company expects net profit to maintain steady growth in the coming quarters, supported by stable asset growth contributions. The outlook for dividends remains optimistic, based on the company's solid operational logic and past performance [12][15]. Cost of New and Existing Policies - The break-even yield for new business is expected to be below 2.2% for 2024, while existing business costs are projected to be below 2.5%. This indicates a potential decrease in costs for new policies, enhancing profitability [19][21]. Investment in High Dividend Assets - The company has a significant allocation in high dividend assets, which constitutes nearly 50% of its OCI (Other Comprehensive Income). This strategy aims to enhance net asset performance despite lower short-term volatility [22][18]. Impact of Macroeconomic Environment - The performance of Ping An Bank is closely tied to the macroeconomic environment, with a slight decline in profits observed in Q1 2025. However, the overall impact on the group's net profit and dividends is considered limited, primarily affecting the life insurance segment [15][16]. Conclusion - China Ping An is positioned for steady growth in its life insurance and asset management segments, with a focus on maintaining stable dividends and profitability despite external economic pressures. The management changes and strategic adjustments in sales channels are expected to enhance operational efficiency and market performance [2][7][12].