Zhongtai: Maintains "Buy" rating on PICC P&C (02328); product development rules upgraded from "guidelines" to "regulations"

Zhongtai released a research report maintaining its earnings forecasts, expecting PICC P&C (02328) to report net profit attributable to shareholders of RMB 41.660 billion, 44.204 billion, and 46.691 billion for 2026-28, with year-on-year growth rates of 3.2%, 6.1%, and 5.6%. The company combines high dividend yield characteristics with improving industry sentiment, and its valuation multiple is expected to further expand. The "Buy" rating is maintained. The bank believes that the regulatory extension of comprehensive non-auto insurance governance raises compliance thresholds and benefits large property insurance companies. As a leading institution, PICC P&C's advantages in risk pricing capability are expected to be further demonstrated. Zhongtai's main views are as follows: Recent Events The National Financial Regulatory Administration issued the "Regulations on the Administration of Insurance Product Development for Property Insurance Companies" (Jin Gui [2026] No. 9, hereinafter referred to as the "Regulations"), effective from November 1, 2026, simultaneously abolishing the 2016 "Product Development Guidelines." The "Regulations" consist of 8 chapters and 41 articles, upgrading regulatory rules from "guidelines" to "regulations." This is an important measure in property insurance regulation and comprehensive non-auto insurance governance, and also an important lever for strict and strengthened regulation. Summary of Key Points of the "Regulations": Eight Categories of Prohibited Development Situations Listed, Additional Insurance Development Requirements Refined 1) Eight categories of prohibited development situations are delineated, blocking supply of gimmicks with no actual protection or price-cutting hype. 2) A separate chapter is dedicated to additional insurance, listing five categories of situations that in principle shall not be developed, strictly prohibiting "replacing the main policy with additional policies." 3) Where industry demonstration clauses or benchmark pure risk loss ratios exist, they shall in principle be used; those who do not use them must explain the reasons and differences, while users may be exempt from submitting feasibility reports. 4) Substantively changing filed clause rates through special agreements, endorsements, or protocols is prohibited. 5) Main entity responsibilities are consolidated: the principal person in charge leads the establishment of a product management committee, non-demonstration clauses unused for three consecutive years must be cleaned up and deregistered, and the Chief Compliance Officer and Chief Actuary bear direct responsibility for clause and rate review respectively. Policy Impact Analysis: Regulatory Extension of Comprehensive Non-Auto Governance, Raising Compliance Thresholds to Benefit Large Property Insurance Companies Article 40 of the "Regulations" explicitly states that for auto insurance, agricultural insurance, marine insurance, policy-oriented credit insurance, short-term health insurance, and accident insurance, "where otherwise provided, those provisions shall prevail." Therefore, the "Regulations" focus on enterprise property insurance, liability insurance, engineering insurance, home property insurance, cargo insurance, and credit guarantee insurance precisely the key commercial non-auto segments where industry and company underwriting profitability is relatively weak and operational improvement potential is relatively large. 1) It is expected to eliminate chaotic competition in industry product clauses and rates, enhancing the adequacy of product pricing. As a leading institution, PICC P&C's advantages in risk pricing capability are expected to be further demonstrated. Previously, mismatched insurance types such as "low-priced main policy + additional policies to supplement coverage" and "filing one set while executing another" through special agreement workarounds were the main vehicles of irrational competition. Now these are simultaneously cut off, and competition returns to actuarial pricing and risk reduction, making leading advantages more visible. 2) Full lifecycle management constitutes fixed costs, with significant scale dilution effects. Combined with the cleanup and deregistration mechanism, long-tail homogeneous products are accelerating their exit from January to July 2026, enterprise property insurance re-filed clauses decreased by 28,000 compared to before the governance, and employer liability insurance shrank by more than 600, with their fee rates declining by approximately 6 and 5 percentage points year-on-year respectively. 3) Formulating and using industry demonstration clauses and benchmark pure risk loss ratios is an important means to enhance industry clause standardization and normalization, and to improve pricing precision and scientific rigor. In the non-auto sector, national-level documents currently cover only a few items such as textile industry enterprise property insurance, road construction engineering loss ratio tables, and safety production liability insurance standard clauses. National demonstration clauses for enterprise property insurance and employer liability insurance remain blank. Attention should be paid to the pace of publication by industry associations and the Actuarial Society regarding demonstration clauses and loss ratio tables for major non-auto insurance types a key variable for this benefit to transition from policy dividend to financial statement dividend. Analysis of Financial Impact on the Company: Conducive to Further Solidifying the Company's Updated Guidance on Commercial Non-Auto Insurance Underwriting Profitability At the 2025 annual results presentation, the company updated its non-auto guidance: through optimization of non-auto insurance expense structure, tilting business structure toward more profitable insurance types, and diminishing drag from agricultural insurance business, it strives to reduce the non-auto insurance combined ratio (COR) below 100% for fiscal year 2026. In 1H26, the company's non-auto insurance COR decreased from 95.7% in the prior year to 94.6% in the current period. The bank assumes that after the full implementation of this round of comprehensive non-auto governance policies, the annualized overall combined expense ratio of non-auto insurance business will be reduced by approximately 3 percentage points, corresponding to underwriting profit enhancement of RMB 423 million, 2.030 billion, and 1.852 billion for fiscal years 2026-28 respectively (after considering the earned premium effect). Attention should be paid to the sustainability of subsequent improvements in underwriting rates and actual expense ratios. Risk Warnings Trend-based decline in long-end interest rates, equity market volatility, and risks of untimely research report calculations and updates.