Investment Rating - The report maintains an "Overweight" rating for the insurance sector [2] Core Insights - The P/CE-ROCE valuation system has been updated based on the 1H25 financial results of listed insurance companies, highlighting the resilience of group insurance companies amid fluctuating net asset values and differing liability assessment curves [5][27] - The report emphasizes the importance of the new valuation framework, which integrates comprehensive equity (CE) and comprehensive equity return rate (ROCE) to better reflect the true value of insurance companies under new accounting standards [5][42] Summary by Sections 1. P/CE-ROCE Valuation System Overview - The P/CE-ROCE valuation system was introduced to address the limitations of the previous P/EV-ROEV framework, focusing on comprehensive equity (CE) as a more accurate measure of insurance company value [5][11] - The system calculates CE as the sum of net assets (NA) and net contract service margin (CSM), providing a clearer picture of profitability and asset-liability matching [5][11] 2. Industry Performance Analysis - In 1H25, the comprehensive equity (CE) growth varied among listed insurance companies, with China Life Insurance leading at 7.0% growth, while Sunshine Insurance and Xinhua Insurance experienced declines of -4.2% and -6.7%, respectively [5][31] - The overall industry saw a 1.4% increase in CE, driven primarily by differences in net asset growth rates among companies [5][31] 3. ROCE Calculation Results - The non-annualized ROCE for listed insurance companies in 1H25 showed significant variation, with China Life Insurance achieving the highest ROCE at 9.2%, while Sunshine Insurance and Xinhua Insurance reported negative ROCE values [5][39] - The report notes a 13.0% year-on-year decline in overall comprehensive income (CI) for the sector, influenced by market interest rate changes and negative contributions from other comprehensive income (OCI) [5][37] 4. Valuation System Fit - The P/CE-ROCE system demonstrated a better fit for H-share listed insurance companies compared to A-share companies, indicating a positive correlation between ROCE and P/CE valuations [5][40] - The report concludes that the new CE valuation system provides a more prudent and comprehensive assessment of insurance companies' value, avoiding the over-reliance on long-term economic assumptions [5][42]

Investment Rating - The report maintains an "Accumulate" rating for the insurance sector [2]. Core Insights - The PCE-ROCE valuation system is introduced to better reflect the true value of insurance companies under new standards, addressing the limitations of the traditional P/EV system [6][47]. - The report identifies that companies like China Pacific Insurance and China Life Insurance are significantly undervalued in the A-share market, while in the H-share market, China Pacific, China Life, and Sunshine Insurance are also notably undervalued [6][6]. - The insurance sector is characterized by dual benefits: companies possess dividend advantages, and leading firms like Ping An have strategically invested in high-dividend assets, which positively impacts their performance [6]. Summary by Sections 1. Introduction - The P/EV valuation system is under scrutiny due to a prolonged low interest rate environment, leading to a decline in the valuation levels of listed insurance companies [16][16]. - As of July 23, 2025, major insurance companies are trading at historical low P/EV ratios, indicating a potential valuation trap [16][16]. 2. PCE-ROCE Valuation System - The PCE-ROCE system incorporates comprehensive equity (CE) and return on comprehensive equity (ROCE) to provide a more accurate valuation framework [47][48]. - The system aims to mitigate the volatility associated with traditional valuation methods by integrating net assets and contract service margins [6][47]. 3. Comparison with PIEV - The PCE-ROCE system is deemed more effective in reflecting the true value of insurance companies in a low interest rate environment compared to the PIEV system, which relies heavily on long-term investment return assumptions [8][8]. - The report highlights that the PCE-ROCE system offers a balanced valuation approach by considering both net assets and contract service margins [8][8]. 4. Profitability Analysis of Listed Insurance Companies - The report evaluates the profitability of insurance policies under the new standards, focusing on contract service margins (CSM) and new business contract service margins (NBCSM) [8][8]. - A scoring system is established to assess the performance of listed insurance companies based on various profitability indicators, with AIA, PICC, and CPIC scoring the highest [8][8]. 5. Main Conclusions and Investment Recommendations - The report concludes that the insurance sector presents significant investment opportunities, particularly in companies that are undervalued and have strong dividend policies [6][6]. - Recommended companies for investment include New China Life, Ping An, AIA, China Life, China Pacific, and China People’s Insurance [6][6].