Orient: Insurance investment side sees notable disruptions; focus on steady OPAT growth

Orient released a research report stating that investment-side disruptions were concentrated in Q3, the core insurance business operated steadily, and sector earnings are expected to gradually recover as the equity market stabilizes. Listed insurers' valuations are at relatively low historical levels, and liability-side value improvement and investment-side earnings recovery are expected to jointly support sector valuation enhancement. As the high-base disturbance from life insurance new business gradually fades and the suppression of investment returns from the equity market correction eases, the insurance sector has room for earnings and valuation recovery. It is recommended to focus on leading insurers where liability-side value improvement and investment-side earnings recovery are expected to resonate. Orient's main views are as follows: The Q3 equity market correction dragged on listed insurers' earnings; the core insurance business operated steadily and net assets maintained growth In 9M26, the five A-share listed insurers together achieved net profit attributable to parent of RMB276.58 billion, -35.1% YoY; in 3Q26 alone, they recorded a combined loss of RMB40.81 billion, mainly due to declines in fair value changes of financial assets held for trading and the high base in the same period last year. Over the same period, Ping An Insurance/China Pacific Insurance's net profit attributable to parent operating profit rose +8.3%/+5.6% YoY respectively, and property insurance underwriting profit maintained growth. All five companies' net assets attributable to parent grew from the beginning of the year, supported by cumulative profits from the core insurance business and unrealized gains on some OCI equity assets. Life insurance growth slowed but the trend of structural improvement remains unchanged; new business value growth slowed markedly In 9M26, life insurance industry premiums rose +0.5% YoY, with September alone up +10.4% YoY, as the high-base disturbance from the same period last year gradually faded. In 9M26, China Life Insurance/China Pacific Insurance NBV rose +13.1%/-6.5% YoY respectively, markedly slower than 1H26, mainly affected by the high base of new business in the same period last year and adjustments in the bancassurance channel. In terms of channel structure, the individual agent channel operated steadily overall; bancassurance new business premiums generally declined, while some companies maintained growth in regular premium business; bancassurance fee standardization and the dividend insurance transformation are expected to drive continued improvement in new business liability costs. Property insurance premiums grew steadily, with non-auto insurance contributing the main increment, and underwriting profit continued to improve In 9M26, PICC P&C/Ping An P&C/CPIC P&C original insurance premiums rose +1.7%/+3.5%/+1.9% YoY respectively, auto insurance was broadly flat, and non-auto insurance rose +3.2%/+10.0%/+3.7% YoY respectively, contributing the vast majority of premium increment. The three companies' combined ratios were 95.8%/95.6%/96.2%, improved by 0.3/1.4/1.4pct YoY respectively, with improved underwriting profit providing support for group operating performance. Comprehensive governance of non-auto insurance and expense control are expected to continue driving underwriting costs lower. The equity market correction dragged on total investment yield; unrealized gains on OCI assets supported comprehensive investment return In 3Q26, the CSI 800 Index fell 14.0%, compared with a rise of 19.8% in the same period last year, putting notable pressure on listed insurers' trading equity investment returns. In 9M26, China Life Insurance/China Pacific Insurance/New China Life Insurance/The People's Insurance total investment yields fell 3.2/2.7/5.1/1.9pct YoY respectively. In terms of net investment yield, the continued decline in long-end interest rates increased reinvestment pressure, and China Pacific Insurance's net investment yield fell 0.2pct YoY. In terms of comprehensive investment yield, valuation gains on OCI bonds and high-dividend stocks provided support; New China Life Insurance's comprehensive investment yield was 5.0%, 1.5pct higher than its total investment yield; Ping An Insurance's pre-tax unrealized gains on high-dividend OCI stocks exceeded RMB58 billion, thickening net assets. Risk warnings Long-end interest rates declining more than expected; significant volatility in the equity market; life insurance reform results falling short of expectations; product structure transformation falling short of expectations; property insurance combined ratio rising more than expected; household income falling short of expectations; regulatory policy change risk; actuarial assumption adjustment risk.