In recent years, against the backdrop of increased capital market volatility and accelerated market rotation, high-dividend assets have received widespread attention from the market. The reason behind this is the natural drive of capital gains and risk aversion.
On the one hand, in an environment of weak macroeconomic recovery, the long-term bullish foundation of the capital market is not strong enough, compounding the long-term downward trend of interest rates. Investors, especially long-term capital, are not easy to obtain long-term stable returns, and the defensive nature of high-dividend sectors is prominent. On the other hand, policy supervision is paying more and more attention to protecting investors' interests, forcing listed companies to improve the quality of their operations, and companies that can continue to pay dividends at a high percentage are also more likely to be recognized by the market.
As a representative of the high-dividend sector, insurance deserves more attention in the current wave of high dividends. However, most of the market's attention is still focused on direct insurance companies, and there is relatively little attention paid to the more scarce reinsurance companies. China Reinsurance (hereinafter referred to as “China Reinsurance”), as a leading domestic reinsurance company, recently announced its 2023 annual results, with a dividend of 0.042 yuan per share. Based on the closing price on March 28, the company's dividend rate exceeded 8%.
The key to being able to pay such generous dividends is to ensure good business conditions in China.
I. Overall improvement in core performance data
In 2023, China Reinsurance achieved a consolidated total premium income of 176.849 billion yuan, an increase of 4.2% over the previous year; consolidated insurance service revenue of 99.755 billion yuan, an increase of 11.8% over the previous year.
The restoration of profitability is particularly prominent. In 2023, China Reinsurance consolidated net profit attributable to shareholders of the parent company of 5.652 billion yuan, an increase of 5.977 billion yuan over the previous year; ROE (weighted average return on net assets) reached 6.22%, an increase of 6.58 percentage points over the previous year.
Being able to achieve outstanding performance on the profit side is inseparable from the Group's efforts on both the underwriting and investment sides.
Underwriting profit reached a record high. In 2023, the consolidated underwriting profit of China Reinsurance increased by more than 900% year over year. All business segments showed outstanding performance in terms of underwriting efficiency, and the comprehensive cost ratio showed a year-on-year downward trend.
Among them, the comprehensive cost rate for the domestic property reinsurance business was 99.53%, down 0.23 percentage points from the previous year; the comprehensive cost rate for the overseas property reinsurance business was 85.74%, down 8.29 percentage points from the previous year; the comprehensive cost rate for the personal reinsurance insurance insurance business was 97.12%, down 0.55 percentage points from the previous year; and the comprehensive cost rate for the direct property insurance business was 100.78%, down 2.28 percentage points from the previous year.
In terms of investment, in 2023, China's net investment income was 14.370 billion yuan, up 22.4% year on year; the net return on investment was 4.28%, up 0.62 percentage points year on year. In an environment where interest rates have been low and market fluctuations have intensified in the past year, it is not easy for China Reinsurance to achieve such results in terms of investment.
Overall, China Reinsurance's latest financial report can be summed up by “full recovery,” showing the trend of all businesses developing in an upward channel.
Of course, this is inseparable from the overall recovery trend of China's insurance industry. In 2023, China's insurance industry achieved original insurance premium income of 5.12 trillion yuan, an increase of 9.14% over the previous year; of these, property insurance premium income was 1.36 trillion yuan, an increase of 7.1% year on year; personal insurance premium income was 3.76 trillion yuan, up 9.9% year on year.
However, behind the overall high increase in premiums, there is actually a reality of fragmentation in the development of insurers.
For example, in the field of personal insurance, the premium income growth rates of the five major life insurance companies, including China Life Insurance, Ping An Life Insurance, Taibao Life Insurance, Xinhua Insurance, and People's Insurance Life Insurance, were 4.3%, 6.2%, 4.9%, 1.7%, and 8.6%, respectively. Although they all achieved positive growth, it is clear that there was a big difference in the increase.
In the field of property insurance, the “Big Three” financial insurance companies such as People's Insurance, Ping An Insurance, and Taibao Industrial Insurance all experienced a decline in underwriting profits. In 2023, China Life Insurance achieved a 22.1% year-on-year decline in underwriting profit; Ping An Insurance achieved underwriting profit of 2,083 billion yuan; and Taibao Insurance achieved a 15.6% year-on-year decrease in underwriting profit.
Seen from this perspective, it was not easy for insurance companies to achieve overall positive, high-quality growth last year. To achieve this, China Zaibao Energy is generally inseparable from the collaborative efforts of various business sectors.
II. “Internal and external resonance” of property reinsurance strengthens the basic market
First, China Reinsurance's domestic property reinsurance business continued to grow positively. In 2023, split premium income was 44.01 billion yuan, an increase of 4.5% over the previous year.
Strong cooperative relationships between China Reinsurance and many financial insurance companies are an important factor in achieving the continuous growth of domestic property reinsurance business.
By the end of 2023, China Reinsurance had maintained business dealings with 87 domestic property insurance companies, with a customer coverage rate of 97.8%; in the contract business in which China Reinsurance participated, the number of contracts acting as the chief reinsurer accounted for more than 40%. It consistently ranks first in the domestic market in terms of customer coverage and number of chief reinsurer contracts.
Looking more closely, China's reinsurance is also a beneficiary of the property insurance industry's shift from car insurance to non-car insurance.
Compared to car insurance, the non-car insurance business will accordingly place higher requirements on insurance companies' product design, pricing strategies, risk control, etc., and the demand for distributed insurance derived from this will also be greater, requiring the reinsurance company itself to have strong technical strength.
As an important strategic fulcrum of reinsurance in China, product innovation has been reflected in all segments of non-auto insurance. In 2023, the sub-premium income of China Reinsurance's agricultural insurance business and liability insurance business reached 12.199 billion yuan and 6.354 billion yuan respectively, up 11.8% and 11.1% year-on-year respectively. Among them, the advantages of emerging business sectors have been further consolidated, and sub-premium income from key emerging insurance types such as short-term health insurance, construction engineering quality potential defect insurance (IDI), and production safety liability insurance have all achieved rapid growth.
In addition, China Reinsurance's overseas business also achieved impressive results. In 2023, the total premium income from overseas property reinsurance and bridge services was 23.285 billion yuan, an increase of 18.7% over the previous year. The key point is that China Reinsurance has grasped the trend of rising global rates and expanded its advantageous business scale on the basis of benefits.
The bridge business, in particular, has benefited not only from lower rates, but also from its own high-quality development. Since the acquisition, Bridge has doubled its large-scale profit. Total premium revenue increased 98.0% from the first year of the acquisition in 2019 to 19.039 billion yuan, the comprehensive cost ratio decreased by 17.37 percentage points to 81.88% compared to 2019, and the return on economic capital increased 9.1 percentage points to 18.8% compared to 2019, and the return on capital increased significantly.
Seen from this perspective, the property reinsurance business structure continues to be optimized, and the global development strategy continues to advance, maintaining a good pace of development.
III. Personal reinsurance properly grasps business opportunities
Unlike the “internal and external resonance” of property reinsurance, which boosted overall performance, the personal reinsurance business division reasonably grasped the market opportunities in various domestic and foreign business lines, and overall premium income was steady, reaching 63.241 billion yuan.
Looking further, the company strategically developed the guaranteed business in an effort to overcome the adverse effects of the industry and continuously optimize the business structure. The comprehensive cost ratio of the guaranteed business was 97.12%, down 0.55 percentage points from the previous year; underwriting profit was 610 million yuan, an increase of 7.2% over the previous year, and the underwriting efficiency continued to improve.
From a long-term perspective, the guaranteed business also has quite a few highlights.
For example, as the aging of the population continues to deepen, the problem of old-age care is becoming more prominent. In situations where basic insurance cannot be fully and fully covered in our country, commercial insurance should assume more important responsibilities. China Reinsurance actively lays out emerging risk areas such as long-term care insurance and disability insurance, and develops standardized product plans integrating the main business of direct insurance companies to drive the development of the domestic long-term care disability market.
Another example is that under the strategic direction of “data +,” “product +,” and industrial integration, China will focus on a full-process disease course management service model, continue to build a service system combining protection and health management, deepen the industrial ecological layout in the fields of serious cancer, long-term care, and outpatient drug purchases, and explore integrated innovation models.
In terms of savings businesses, in a low interest rate market environment, the investment side of insurance companies is under pressure. The supervisory authorities provide window guidance on pricing interest rates for personal insurance products in order to prevent the risk of interest spreads and losses. The reduction in predetermined interest rates helps insurers reduce debt costs and enhance the risk resistance of insurers. However, the market will have doubts about whether the fall in predetermined interest rates will affect subsequent sales of personal insurance products.
As far as China Reinsurance is concerned, the domestic savings business in the past two years has mainly focused on mining the stock business of direct insurance companies. Newly sold insurance policies account for a relatively small share, so the impact of the reduction in scheduled interest rates on the scale of the company's savings business is limited.
In 2023, China Reinsurance reasonably grasped the pace of domestic savings-type business and grasped the short-term underwriting business. The savings reinsurance business's premium revenue was RMB 15.203 billion, an increase of 53.1% over the previous year.
Moreover, in terms of stock business, China Reinsurance's savings business has a shorter term of debt, generally less than 5 years, which is better matched with the term of assets. The corresponding risk of interest spread loss is less exposed, and the risk of interest spread loss is generally manageable.
This also reflects the fact that China Reinsurance has long had strict control over business costs, adheres to the principles of long-term matching and yield matching, and undertakes new business on the premise that interest spreads and income requirements are met.
IV. Conclusion
Overall, at a time when the global economy is facing many uncertainties, China Reinsurance has demonstrated the adaptability and resilience that leading companies should have with its deep accumulation and innovation capabilities in the field of reinsurance.
Although China Reinsurance's stock price has risen by more than 28% since this year's low, the price-earnings ratio of 3.5 times and the net price-earnings ratio of 0.2 times are insufficient to reflect the growth reflected in this performance. Subsequently, along with the restoration of both sides of the insurance industry's assets and liabilities, expectations that China Reinsurance's performance will continue to improve will be further strengthened. Combined with the certainty brought about by high dividends, the long-term value of China Reinsurance should be re-examined by the market.