Huachuang Securities: expected differentiation in insurance profit fluctuations, NBV likely to see double-digit growth.

Huachuang Securities released a research report stating that the current valuation of most insurance companies is below the 50th percentile of the past ten years, indicating that the bottom value has been reached. In the short term, the performance of Q1 2026 is expected to be under pressure due to market volatility, but some insurance companies may perform better than expected due to differentiated investment strategies. The liability side is driven by volume and is expected to achieve double-digit growth in NBV. In the medium to long term, with multiple regulations and industry initiatives, the industry's cost of liabilities is gradually optimized, and the risk of "interest spread loss" is expected to be mostly cleared. PEV valuation is expected to recover to 1x. For property insurance, premium prosperity is linked to economic growth, risk reduction and management services lower the payout ratio, strict industry supervision, and comprehensive reporting system integration promote expense ratio optimization. Property insurance ROE is expected to steadily rise, driving PB increase. Huachuang Securities' main points are as follows: Preview of the first quarter of 2026 insurance report In the first quarter of 2026, A-share markets were under pressure due to geopolitical conflicts, with the Shanghai and Shenzhen 300 Index falling by 3.89%. Oil and coal sectors led the gains, while consumption and non-bank sectors were under pressure. In the bond market, long-term interest rates fluctuated narrowly, with the ten-year treasury yield at 1.82% at the end of Q1, down 3bps from the previous year. Since the implementation of the new regulations, insurance performance has been mainly affected by the investment side, with a clear strong beta property. Market volatility has led to widespread pessimism in the industry's Q1 2026 earnings expectations. The sector continues to adjust after giving back nearly a year of gains after the Spring Festival. The bank believes that insurance earnings in the first quarter are likely to be under pressure, but the extent of the performance volatility or differentiation will depend mainly on the company's differentiated investment strategies. On one hand, stocks with dividends or OCI investment styles have relatively limited declines in individual performance in Q1 2026, with sectors such as utilities and environmental protection seeing increases. On the other hand, the bank believes that the actual level of FVTPL equity positions is not directly related to the extent of performance volatility, but rather depends more on the company's tactical asset allocation (TAA) flexibility. Additionally, attention should be paid to the impact of interest rate fluctuations, as the upward movement of the ten-year treasury yield in the same period last year led to bond losses, but with interest rate movements in Q1 this year, some performance growth is expected to be contributed. Regarding liabilities, The bank believes that life insurance is expected to achieve double-digit growth in NBV. The drive is expected to mainly come from the increase in new bancassurance business, which benefits from the re-allocation of deposits from residents in the first quarter; prices are expected to remain flat year-on-year, although the increase in the proportion of dividend insurance leads to pressure on value rates, adjustments in scheduled interest rates are still expected to contribute to improvements. The pressure from the increase in the proportion of dividend insurance is expected to become evident in the second half of the year. As for property insurance, there were relatively few natural disasters in the first quarter, and non-car insurance submissions combined could lead to optimizations in some categories such as employer liability insurance, business property insurance, and accident liability insurance, with underwriting profits expected to grow steadily.