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Industry Report Excerpt
January 21, 2009
Demand-driven: Life insurance is hopeful to replace bank deposits.
Housing demand of city (town)dwellers is basically met and burden from house purchase is being gradually reduced. As supporting rate ofsenior citizens rises and substitution rate of social security reduces, guaranteed deposits will be mainincome of city (town) dwellers. Between required funds that maintain current living standard and financialassets of city (town) dwellers, there is a financial gap of Rmb128,600 per person. Due to its compulsorysaving, value maintenance and guarantee function, life insurance is hopeful to replace bank deposits afterhousing.
Value-driven: EV and FNBV are increased.
EV re-rating mainly benefits from improvement in insurancepolicy and investment rate return. In terms of market valuation, it is firstly found in investment rate return andnarrowing even to disappearing of investment margin, and secondly the favor of newly long-term paidinsurance policy to EV and FNBV.
Bottom of investment income has been determined.
Two factors set it; one is the investment margin; 1)At present, Sino-American markets see appropriate margins and benchmark interest rate will be furtherlowered limitedly; 2) Expansion of bond market will change supply & demand relations of funds, withexpected interest rate curve moving upwards; 3) Return rate of the insured can be further down-regulated.The other is the most conservative assets allocation: 1) Investment leverage in 2008 hits historic low; 2)Allocation proportion of equity or transacted assets is cut to the lowest.
There is more improvement room for investment income.
It mainly comes from: 1) Eased pressure onfloating loss and impairment provision withdrawal ; 2) Larger room of assets allocation adjustment ; 3)Expanded investment channel and improved asset term structure; 4) Low-position stock market, withuptrend room opened.
“
Recommended
”
rating maintained.
Driven by demand and value, earnings of insurance companiesgreatly improved, so we give
“
Recommended
”
rating for the sector. Given its potential earning growth andmarket valuation, we give
“
Recommended
”
rating for China Life Insurance (601628), Ping An Insurance(601318) and China Pacific Insurance (601601).
By Zhang Xi 
Insurance Industry: Growth Chart under Driveof Demand and Value --- Recommended
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