Following a challenging first quarter, the interim results from A-share listed insurers reveal a significant profit rebound. Aggregate attributable net profit for these companies reached 317.387 billion yuan in the first half, a year-on-year surge of 78.12%, translating to an average daily profit of roughly 1.754 billion yuan.
A striking 78% of these profits were generated in the second quarter alone, with investment returns serving as the primary engine for earnings growth. While all five major listed insurers reported positive net profit growth, the rate of increase varied dramatically, spanning from as low as 10% to over 200%, highlighting distinct strategic choices in investment allocation and asset accounting classification. On September 1st, the A-share insurance sector bucked the broader market trend to close up 2.62%, with PICC (601319.SH) leading the charge with a 6.17% gain.
Investment returns fuel a dramatic profit surge
The scale of the recovery is notable. A-share listed insurers collectively reported 317.387 billion yuan in attributable net profit for H1 2024, up 78.12% year-on-year. This is a stark contrast to Q1's 69.883 billion yuan (down 16.98% YoY). The robust capital market rebound in Q2 generated 247.504 billion yuan in net profit, accounting for nearly 80% of the cumulative six-month figure. Unsurprisingly, all insurers cited improved investment performance as a key driver of their earnings uplift.
Delving into individual performance, all five major insurers achieved positive net profit growth in H1, but with significant disparity. Leading the pack was China Life (601628.SH), with net profit skyrocketing 228.6% year-on-year. The other four delivered double-digit growth: New China Life (601336.SH) grew 54%, PICC and Ping An (601318.SH) grew 38.5% and 36.1% respectively, while China Pacific Insurance (601601.SH) posted a comparatively modest 10.4% increase.
Mirroring the profit growth, interim shareholder returns have generally improved. Data from Orient Securities shows China Life and PICC increased their interim dividend per share by 50.4% and 46.7% YoY respectively, outpacing peers. China Pacific Insurance declared its first-ever interim dividend, meaning all five listed insurers now distribute interim payouts. In terms of payout ratio, Ping An is the highest, exceeding 20% based on operating profit, while China Life's dividend based on net profit stands at a relatively low 7.5%.
Explaining the performance divergence among insurers
With all mid-year reports now published, analyst teams like Haitong Securities' Liu Xinqi group attribute the divergence in profit performance primarily to differences in equity investment strategies, with overall results aligning with expectations. In the persistently low-interest-rate environment, net investment yields across the board unsurprisingly showed a declining trend. However, total investment returns, which include trading gains and fair value changes, generally improved. In contrast, comprehensive investment returns, which add unrealized gains/losses on FVOCI (Financial assets at Fair Value Through Other Comprehensive Income) assets, were flat or slightly down for some, with New China Life seeing no change YoY and China Pacific Insurance and Ping An seeing decreases of 0.6 and 1 percentage point respectively. As noted in the insurers' reports, these yield figures are not standardized for annualization or calculation basis, making direct comparisons inappropriate.
Industry sources suggest a common "barbell strategy" in equity allocation, balancing high-dividend stocks as a base with growth stocks for returns. However, tactical implementation varies. In accounting terms, growth stocks are typically placed under FVTPL (Financial assets at Fair Value Through Profit or Loss) to capture gains, while dividend stocks are often designated as FVOCI. Analysts at Huatai Securities, including Li Jian, note significant differences in secondary equity investment styles. Some companies, like New China Life (FVTPL ratio 10.1%) and China Life (8.1%), lean towards higher trading frequency and market participation. China Pacific Insurance also holds a substantial FVTPL allocation at 7.6% but with a lower overall equity exposure. Conversely, Ping An emphasizes FVOCI investments, with a half-year-end allocation of 9.6%, significantly above the industry average, and over half of its stock investments in this category, aiming for more stable yields and smoother profit volatility.
Several analysts believe China Life's outstanding profit growth stems from its proactive and flexible investment strategy that capitalized on the market rebound, particularly benefiting from growth asset appreciation. In contrast, Ping An and China Pacific Insurance have a heavier tilt towards dividend stocks. China Life attributed its strong performance to achievements in areas like new quality productive forces. Its VP and Secretary to the Board, Liu Hui, stated that investments in related fields have grown at an average annual rate of 30%, with a scale exceeding 540 billion yuan. The company's total investment return surged 146.7% YoY, driven primarily by a more-than-130-fold increase in FVTPL fair value gains. China Pacific Insurance, however, faced headwinds with its core dividend-focused strategy, as the CSI Dividend Index fell 8.75% in H1 from a mid-March high, a near 16% drawdown. Su Gang, Vice President and CFO, acknowledged "considerable phased pressure" on their comprehensive investment returns compared to peers, citing insufficient flexibility and outlining plans to strengthen satellite equity strategies.
A key differentiator is their FVOCI allocation. Data shows Ping An designated a substantial 65.76% of its equity portfolio as FVOCI by mid-year, versus only 34.7% for China Pacific Insurance. Industry insiders suggest this indicates China Pacific Insurance holds a significant portion of dividend stocks within FVTPL, making its net profit more sensitive to market price fluctuations in those stocks. Interestingly, China Pacific Insurance was the only one of the five to see its FVOCI proportion decline (down 2.3 percentage points to 34.7%) from end-2023, while Ping An and China Life increased theirs by 9.3% and 10% respectively. New China Life had the lowest FVOCI ratio at 20.7%.
Insurers continue to increase equity allocation
Despite short-term profit divergence, a clear consensus has emerged: increasing equity allocations. As of mid-2024, the five listed insurers' core equity assets (stocks and securities funds) totaled 4.04 trillion yuan, up 13.83% from year-end 2023, representing 18.68% of total investment assets. China Life, New China Life, and PICC each increased their core equity balances by over 20%. All five insurers raised their core equity allocation ratios, with increases ranging from 0.2 to 4.4 percentage points. New China Life had the highest ratio at 25.5%, while PICC (15.5%) and China Pacific Insurance (13.94%) were relatively lower. Direct stock investment balances increased by 303.9 billion yuan to 2.82 trillion yuan, up 12.09% from end-2023, with all insurers except PICC having stock allocation ratios above 10%.
Looking ahead, the bullish stance on equities persists. Ping An Co-CEO Guo Xiaotao expressed confidence in China's economic resilience and long-term healthy development of its capital markets. PICC Group Vice President Cai Zhiwei called equity investment the "decisive factor," as fixed-income yields remain under pressure and equities are vital for stabilizing investment performance. China Pacific Insurance's Su Gang also pledged to continue "rhythmically increasing" their equity allocation.
In terms of investment themes, dividend and tech stocks are seen as the main directions. With the National Financial Regulatory Administration's new "asset-liability management measures" introducing net investment income coverage requirements, high-dividend stocks become a key lever to support net investment income. Cai Zhiwei indicated PICC will enrich its high-dividend strategies to boost dividend income. Concurrently, several insurance executives maintain a positive outlook on technology stocks as a source of excess returns. China Life's Liu Hui highlighted new quality productive forces as a crucial growth area for future differentiated returns.