On May 17, the insurance sector collectively surged. China's Ping An Hong Kong A-shares once again joined hands to attack. Hong Kong stock prices rose by more than 5 points, and A-share prices closed up by nearly 5 points.

The direct catalyst is also the strengthening of market expectations brought about by the introduction of major favorable policies.

On the same day, the central bank issued three successive real estate finance policies: adjusting the minimum down payment ratio for personal housing loans, making it clear that the minimum down payment ratio for commercial personal housing loans for the first housing unit was not less than 15% (previous value was 20%), and the minimum down payment ratio for commercial personal housing loans for two housing units was adjusted to no less than 25% (previous value was 30%). At the same time, interest rates for personal housing fund loans for the first home and the second home were adjusted to a minimum of 2.775% and 3.325%, respectively. Furthermore, in terms of adjusting interest rates on commercial personal housing loans, the lower limit of the national commercial personal housing loan interest rate policy for first housing units and two housing units was abolished.

In this policy, the down payment ratio fell to a historic low, exceeding market expectations. This rare easing policy has undoubtedly given the strongest voice to the real estate industry.

Furthermore, on the same day, a national video conference on how to do a good job in housing delivery was held in Beijing. Senior officials called for a good fight to deal with the risk of unfinished commercial housing to protect the legitimate rights and interests of buyers.

With the help of a series of policies, it has helped stabilize the real estate industry and strengthen market confidence.

1. Why do insurance stocks benefit from favorable real estate policies?

The core behind real estate is finance, so improvements in the real estate industry directly benefit the financial industry represented by insurance, banking, and securities.

From the perspective of insurance companies, insurers mainly invest in bonds. In particular, in the past few years, real estate company bonds have been the core holdings of insurers. Despite increased risks in the real estate industry, insurers have reduced and adjusted their assets in this area, including drastically reducing their holdings of shares and bonds in listed real estate companies. However, as an important participant in the financial market, the “anchoring” effect between insurers and the real estate industry is still the consensus of the market.

At the same time, risks in the real estate industry have also caused insurers' related asset impairment charges. Now, as insurance companies' real estate investment exposure risks are gradually released with policy support, this impact will also subside, which will help raise the expectations of an improvement in the asset quality of insurance companies, and thus promote the restoration of market confidence.

Furthermore, real estate is the mother of all industries. It has an important position and role in the national economy. If real estate thrives, the industry will prosper. The improvement of the industry will drive simultaneous growth in the industrial chain, thus providing a solid foundation for economic stability and development, helping to improve asset quality, and will also benefit the asset-side performance of insurers.

From a deeper perspective, the stabilization and continuous recovery of the economy will also provide support for long-term interest rates. It will also benefit insurers' asset-side performance under rising expectations, and help expand interest spreads in the insurance business, thereby increasing the profitability of insurance companies and promoting valuation repair.

2. As insurance investment enters a new window period, can leading insurers get out of excess income?

Looking back on the past, since 2020, against the backdrop of deep industry reforms and suppression of assets and liabilities, domestic insurance stock prices have fluctuated downward, and the stock prices of many leading insurers have dropped. This provides a sufficiently high margin of safety for insurance stocks to rebound. Especially in the current context where capital is being optimized to repair the fundamentals of the industry, insurance stocks have plenty of room to rebound.

Furthermore, in recent years, the market style has switched to high-dividend assets, and insurers, as important representatives, are more likely to be sought after by capital.

As a leading insurer with 12 consecutive years of growth in total dividends, Ping An's cash dividend rate reached 37% in 2023. Stable and growing dividends fully reflect Ping An's “investor-centered” development philosophy and continuously strengthened its value attributes.

Ping An's motivation to stick to the high dividend policy for a long time comes from the steady growth of its core business.

In the first quarter of this year, Ping An's three core businesses, life insurance and health insurance, property insurance, and banking, resumed growth. The total operating profit of the three businesses attributed to shareholders of the parent company was 39.816 billion yuan, which achieved positive growth over the previous year.

In particular, the core life insurance business showed clear signs of improvement.

In the first quarter of 2024, the new business value of the life insurance and health insurance business reached 12.890 billion yuan, a year-on-year increase of 20.7% on a comparable scale.

This is inseparable from Ping An's in-depth reform of agent channels in recent years. In the first quarter of 2024, the share of “Excellent +” in new manpower increased 11.0 percentage points year on year. The per capita new business value of agent channels increased 56.4% year on year, and the new business value ratio reached 22.8%, up 6.5 percentage points year on year under comparable standards.

As a leader in industry reform, Ping An should have received positive feedback from the reform sooner.

From a higher strategic perspective, Ping An's ability to achieve and is likely to continue to achieve steady growth is inseparable from its unique business model.

Relying on the unique advantages of the “comprehensive finance+medical care” two-wheel drive strategy, Ping An can not only increase revenue sources, diversify the risk of business fluctuations, reduce customer acquisition costs, and increase customer stickiness through a hybrid business model, but also seize the industrial opportunities of the Yinfa economy, increase its own insurance business market share, and open up new growth points for the pension industry.

There is both a solid supply of dividends and significant growth potential to be tapped. This is the key to Ping An's ability to continuously reap institutional recognition.

3. Conclusion

Looking at it now, improvements in the real estate industry have directly benefited financial institutions such as insurance companies. As market risks are gradually released and the economy continues to recover, insurance companies' asset quality expectations will improve, market confidence will be strengthened, and the potential for valuation repair will gradually become apparent.

Combined with recent favorable policy incentives from other insurance industries, the market's expectations for improvements on both sides of insurance's balance and liability are becoming more and more intense. In the process, leading high-quality insurers represented by Ping An may continue to be favored by the market, and the market interpretation on the right is worth looking forward to.