The Zhitong Finance App learned that CICC released a research report stating that maintaining China Financial Insurance (02328)'s “outperforming the industry” rating, the company's 24e EPS remained unchanged at 1.37 yuan per share, and introduced 25e EPS for the first time at 1.46 yuan, with a target price of HK$11.8. The company announced 2023 results: premium revenue +6.3% year on year; comprehensive cost ratio (CoR) +1.2ppt to 97.8% year over year, better than the forecast, mainly due to the improvement in the competitive environment for car insurance compared to the bank's previous expectations. Net profit of 24.585 billion yuan, -15.7% year over year, was better than the bank's expectations, mainly due to the company's underwriting performance being better than the bank's previous expectations.

The main views of CICC are as follows:

Despite the impact of the disaster, the underwriting performance was excellent and met the company's guidelines.

Affected by natural disasters such as transportation recovery after the epidemic and torrential rain in the second half of the year, the company's annual COR was +1.2ppt to 97.8% year over year. Among them, car insurance/non-car insurance were +2.4/-1.1ppt to 96.9%/99.1% year on year respectively, reaching the target guideline of less than 97%/100% for car insurance/non-car insurance given by management at the beginning of the year.

In terms of car insurance, due to the rise of irrational competition in the post-epidemic market and the impact of natural disasters, the payment/expense ratio was +2.1/+0.3ppt compared to the same period. However, the business structure continued to be optimized. The annual renewal rate for family cars was +1.1ppt to 77.8% year-on-year, and the number of insurance coverage for new home-owned cars/home-owned vehicles was +6.9%/+6.0% year-on-year, respectively.

In terms of non-car insurance, with the exception of agricultural insurance, which was affected by natural disasters, COR +1.4ppt to 95.8% year over year, the underwriting profit of the other insurance types improved: enterprise financial insurance/liability insurance/health insurance/other insurance types were -0.4/-2.1/-2.8/-1.2ppt to 103.8%/107%/97.7%/95.5% year-on-year, respectively. Furthermore, the company's net reserve for unresolved claims for the whole year (old standard) was +2.6% year-on-year. Considering that the company's premium income growth rate reached 6.3%, the bank expects the ratio of the company's outstanding claims reserves to decrease compared to the net premiums already earned.

Profit performance was better than expected, and investment performance was stable in volatile markets.

In 2023, the company's net profit was -15.7% year over year, a significant improvement over the 9M23 year-on-year decline (-26.2%). The annual profit performance was better than the bank's previous expectations, mainly due to underwriting profit being better than the forecast; total return on investment for the year was -0.3ppt to 3.5% year on year, total investment assets increased 4.3% year over year, and total investment income fell slightly 1.6% year on year to 20.8 billion yuan. Investment in a volatile market was more stable than the life insurance industry, highlighting the advantages of the business model.

Raising the dividend rate improves shareholder returns and shows long-term confidence.

Despite the decline in profit, the company increased its dividend rate to 44%, and the dividend ratio per share was +2.3% to 0.489 yuan per share, which is in line with the bank and market expectations. The dividend rate corresponding to the current stock price (2023a) reached 5.2%. The bank believes that increasing the dividend rate not only reflects the importance the company attaches to shareholder returns, but also shows management's confidence in long-term business operations.

Risks: natural disasters; increased competition in the car insurance market; large fluctuations in the capital market.