DJ Investors Sour on Chinese Insurance Giant's Shares
By Chong Koh Ping
Lackluster insurance sales and some poorly performing investments have put a damper on Ping An Insurance (Group) Co.'s share price.
The Chinese retail financial-services giant, with a market capitalization of about $157 billion, is the world's second-most valuable insurer after Warren Buffett's Berkshire Hathaway Inc. The Shenzhen-based group also operates a bank and has units that provide asset management, consumer loans, healthcare and technology services.
Ping An's Hong Kong-listed shares, which are part of the MSCI China index, have been on a downward slide lately, losing 29% in the year-to-date period and significantly underperforming broad market benchmarks.
The American depositary receipts of Ping An's U.S.-listed online-lending associate, Lufax Holding Ltd., and fintech service platform OneConnect Financial Technology Co., have performed worse -- falling 44% and 78% respectively so far this year amid a big selloff in Chinese internet and technology stocks.
Ping An, one of China's biggest sellers of life, health and property-and-casualty insurance, has been grappling lately with a shrinking sales force as the overall insurance industry's growth in policy premiums slows. The company also incurred heavy losses this year from an ill-fated investment in the shares and bonds of China Fortune Land Development Co., a real-estate company that defaulted on its debts. In April, Ping An estimated it would incur a $2.8 billion loss from its $8 billion exposure to the developer.
That didn't deter the cash-rich Ping An from making more high-profile, multibillion-dollar investments in recent months. In April, it said it would pay the equivalent of up to $7.8 billion for a majority stake in Founder Group, a new company with healthcare and other businesses that was assembled from the assets of bankrupt Peking University Founder Group. Two months later, Ping An said it would invest up to $5.1 billion in six office-and-shopping complexes in major Chinese cities.
The investments may benefit Ping An in the long run, said Gigi Chen, an analyst at CMB International. She added that some of the share price performance for Ping An and other Chinese insurers is likely a result of weak sales of new life and health insurance policies.
For years, the country's life insurers leaned heavily on individual agents to push sales of short-term investment products that took lump sums from buyers and often guaranteed high returns. After Chinese authorities forcibly took over Anbang Insurance Group in 2018, many companies shifted their focus to selling longer-term policies and more traditional insurance products that collect premiums regularly.
"The insurers realized that the 'brutal way of growth' isn't sustainable, " said David Choa, head of greater China equities at BNP Paribas Asset Management, adding that it will take time for the companies to upgrade their sales force to sell different types of products.
The coronavirus pandemic, which reduced in-person interaction, has also made it more difficult for insurance agents to sell policies to consumers who have less cash to spend.
Ping An said it had 985,726 individual life insurance sales agents at the end of March, down 3.7% from 1,023,836 three months earlier.
Daiwa Capital Markets analysts estimated in a recent report that Ping An's agent numbers fell further to 850,000 by the end of June, representing a 16% first-half decline. "We see no light at the end of the tunnel yet for Ping An's agency team," they said, adding that the falling numbers will weigh on the value of new business that the company reports.
Ping An, for its part, said it has been investing in more training for its agents and equipping them with technology and other tools to sell more lucrative products. It is also rolling out new types of life insurance and critical-illness policies in order to increase sales.
More recently, Ping An estimated its property-and-casualty insurance business would have to pay out the equivalent of more than $154 million in claims to cover losses from severe floods in China's Henan province in July. The company is currently in a quiet period ahead of the release of its first-half results.
Iris Tan, a Morningstar analyst, said structural changes in the Chinese insurance sector will continue to weigh on Ping An for a while, but the company should do better than its peers thanks to its market-leading position.
She said Ping An's stock valuation, at 6.3 times earnings over the next 12 months, looks attractive for investors.
"They need to be patient to wait for the industry turning point," Ms. Tan added.
Write to Chong Koh Ping at chong.kohping@wsj.com
(END) Dow Jones Newswires
August 17, 2021 05:30 ET (09:30 GMT)
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