Huachuang Securities: The logic of growth in the new business value of life insurance in the second half of the year may have opportunities driven by both quantity and price. The combined ratio of property insurance may improve year-on-year.

Huachuang Securities released a research report stating that in the first half of 2024, the average person insurance benefited from the improvement in value rates, and NBV achieved good growth; property insurance faced pressure due to the exacerbation of natural disasters, but some insurance companies such as Taiping and Ping An Property Insurance still achieved COR optimization against the trend; on the investment side, benefiting from a low base, it is expected that the high dividend strategy will be added, and all except CPIC have achieved an increase in total investment yield. Looking ahead to the second half of the year, the growth logic of NBV in personal insurance may have opportunities for driving both quantity and price. Further rate cuts are expected to bring continuous improvement in value rates, and with a low base for new policies, positive growth in speed is expected. For property insurance, if there is no extreme weather interference in the second half of the year, COR may improve year-on-year following the impact of typhoons in Q3 of last year. The base on the investment side is further weakened. The main points of view of Huachuang Securities are as follows: Driven by investment, insurance industry performance is picking up. In the first half of 2024, benefiting from a low base on the investment side and a structural bull market in the equity market, the total investment yield of listed insurance companies has generally rebounded, with PICC and Ping An Property Insurance's year-on-year decline narrowing compared to Q1. Under the catalyst of asset drive, the insurance sector has achieved a comprehensive recovery in performance, with a significant improvement in growth compared to Q1. Among them, all A-share listed insurance companies have achieved positive net profit growth, with Taiping's net profit attributable to the mother increasing by +37.1% year-on-year. Investments are likely to benefit from a structural bull market in equities. The net investment yield in the first half of 2024 all decreased year-on-year, and it is expected to decline due to the impact of long-term rate cuts. But in terms of total investment yield, except for People's Insurance and Property Insurance, which were severely dragged down in the first quarter, other listed insurance companies have all achieved an increase in total investment yield. In terms of allocation strategy, insurance companies increased their allocation to long-duration interest rate bonds in the first half of 2024, mainly to shorten the duration gap; high dividend equity allocation strategies have become prominent, with an increase in the proportion of FVOCI in equity assets; in addition, the exposure to real estate continues to show a trend of narrowing. Personal insurance: Driven by price, new policies are under pressure. Mainly benefiting from the improvement in new business value rates, listed insurance companies have all achieved double-digit growth in NBV. All new business value rates have significantly improved, driven by factors such as further rate cuts, unified reports, and optimization of term structures. The growth rate of total premiums driven by renewal premiums remains high, but with the short-term impact of the unified reports on the sales end of the bank-insurance channel, the growth rate of new policies is under pressure. In terms of product structure, driven by renewals, traditional insurance in the total premium calibre (excluding New China) has shown a year-on-year upward trend. In terms of channel structure, individual insurance has shown significant efforts, with the proportion of new policies sold by bank-insurance affected by unified reports declining. Property insurance: COR affected by disasters, growth slightly lower than expected. Leading property insurance companies maintain steady premium growth, with Taiping significantly narrowing the gap with the top 2. Overall, in terms of COR performance, People's Insurance has increased, but still maintains a leading advantage, while Taiping and Ping An have decreased. Taiping Property Insurance achieved comprehensive COR optimization of major insurance types, with an overall improvement in claims ratios against the trend. Ping An Property Insurance mainly benefited from the clearance of credit guarantee insurance, and overall, it mainly benefited from improvements in the expense side. In terms of auto insurance, both the industry and leading companies have seen a narrowing in growth, with a notable impact from the average premium of vehicles; COR has been significantly affected by the exacerbation of natural disasters, but People's Property Insurance and Taiping Property Insurance have still achieved year-on-year optimization of auto insurance COR, mainly due to improvements in the expense side. Investment recommendations: currently, China Pacific Insurance, with a stable production and life foundation and the alpha effect brought by Changhang's transformation, is still the top recommendation. It also sees long-term investment value in the leading PICC P&C (02328). Concerns about spread losses still exist, so it suggests focusing on China Life Insurance, which has relatively low cost pressures and a stable operating strategy. If the equity market rebounds, it recommends paying attention to flexible varieties such as New China Life Insurance. The recommended order is: China Pacific Insurance (601601.SH), PICC P&C (02328), China Life Insurance (601628.SH), New China Life Insurance (601336.SH), Ping An Insurance (601318.SH). Risk warning: regulatory changes, continued decline in long-term interest rates, reforms falling short of expectations, exacerbation of natural disasters, and volatility in the equity market.