J.P. Morgan: Weak third-quarter results of mainland insurers largely priced in by the market; recommends buying on weakness to increase holdings in Ping An Insurance (02318) and China Life Insurance (02628)

J.P. Morgan released a research report stating that it expects very weak third-quarter earnings for Chinese insurers. Affected by volatility in the Chinese stock market, industry net profit may fall 53% year on year, after having surged 223% in the second quarter. However, the bank does not believe this will become the main downward pressure on share prices, as net profit for the first nine months is expected to be broadly stable, down only 3% year on year, the risk of a profit warning is limited, 2026 earnings per share forecasts have also seen limited revisions after the strong first-half results, and the sector has already underperformed the broader market over the past month. Therefore, the bank recommends using weakness as an opportunity to increase holdings in Ping An Insurance (02318) and China Life Insurance (02628), citing their attractive expected dividend yields of 8% and 4% for FY2027, respectively, as well as solid solvency capital and steady growth in contractual service margin. Key catalysts before year-end include final dividend per share guidance announced during third-quarter earnings conference calls, and possible government support policies for elderly care and long-term care, potentially accompanied by tax incentives. The bank noted that the weak third-quarter results are largely priced in by the market. China Life and New China Life Insurance (01336) are expected to face the greatest pressure, with net profit forecast to fall 89% and 70% year on year, respectively. Due to insurers' equity exposure and the fair value through profit or loss classification, accounting profit remains highly sensitive to stock market movements. According to the bank's estimates, for every 10% change in stock market volatility, the sensitivity to FY2026 expected net profit is about 46%. J.P. Morgan expects major insurers' new business value to grow 22% year on year in 2026, with life insurance growth remaining solid; non-life insurance growth is relatively lackluster, with higher catastrophe risk. The bank prefers stocks that benefit from dividends and policy support over those with weakening underwriting momentum and higher reinvestment risk, with the ranking being Ping An Insurance, China Life, CPIC (02601), PICC (01339), New China Life Insurance, and PICC P&C (02328).