BI FOCUS DAY ASIA LIFE INSURANCE...CHINA: Non-life insurance density = $76; Non-life insurance...

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BI FOCUS DAY ASIA LIFE INSURANCE

APR // 15 // 2014

STEVEN LAM – BLOOMBERG INDUSTRIES ANALYST

[email protected]

BI <GO>, BI LIFEA <GO>

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TABLE OF CONTENTS

TOPIC: Life Insurers in Developed Japan and Developing China

» ASIA INSURANCE MARKET OVERVIEW

» LIFE INSURANCE MARKETS – CHINA & JAPAN

» HEALTH CARE – LESS PUBLIC, MORE PRIVATE

» BLOOMBERG & BLOOMBERG INDUSTRIES

2

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ASIA INSURANCE >>>>>>>>>>>>>>

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ASIA INSURANCE OVERVIEW – LIFE INSURANCE J-CURVE

4

33

Source: Swiss Re data as of 2012. Bloomberg presentation

JAPAN: Life insurance density = $4,143; Life insurance penetration = 9.17%

CHINA: Life insurance density = $103; Life insurance penetration = 1.70%

Taiwan

HK

JapanUK

South Korea

France

SingaporeUSIndia

Malaysia

Germany AustraliaThailandSpain

ChinaIndonesia

Philippines -

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

- 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500

Life insurance - J-curvePenetration (% of GDP)

Density (USD)

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ASIA INSURANCE OVERVIEW – NON-LIFE INSURANCE J-CURVE

5

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Source: Swiss Re data as of 2012. Bloomberg presentation

JAPAN: Non-life insurance density = $1,025; Non-life insurance penetration = 2.27%

CHINA: Non-life insurance density = $76; Non-life insurance penetration = 1.26%

South Korea

US

GermanyFranceTaiwan

UK AustraliaSpain

JapanThailand

MalaysiaSingapore

HKChina

India

Indonesia

Philippines -

1.00

2.00

3.00

4.00

5.00

6.00

- 500 1,000 1,500 2,000 2,500

Non-life insurance - J-curvePenetration (% of GDP)

Density (USD)

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LIFE INSURANCE - JAPAN & CHINA 6

KEY METRICS JAPAN CHINA

Population » 127 million » 1,361 million

Life insurance premium

(2012) » US$524 billion » US$141 billion

Life premium 5yr CAGR

(2012-2007) – LC » 5% » 15%

Life premium density (US$) » US$4,143 » US$103

Life penetration (% of GDP) » 9.2% » 1.7%

Top 3 players – by

premiums

» Dai-Ichi Life (8750 JP) T&D Holdings (8795 JP) Sony Financial (8729 JP)

» China Life (2628 HK) Ping An Insurance (2318 HK)

CPIC (2601 HK)

Life Expectancy » 79 (men) / 86 (women) » 72 (men) / 76 (women)

Health expenditure per

capita (US$) » $4,000 » $278

Health expenditure as % of

GDP » 9.3% » 5.2%

Public vs. Private split 80% / 20% » 56% / 44%

Source: Swiss Re, World Bank, Bloomberg.

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Carbon Analysis Tool Carbon Analysis Tool

VALUATION - JAPAN 7

Sector valuation metrics:

- ROE FY1: 6.5%, P/B FY1: 0.9x, P/E FY1: 14.2x

Sector average 6.5% 0.9x 14.2x

Data as of April 14, 14

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VALUATION - CHINA 8

Sector valuation metrics:

- ROE FY1: 13.6%, P/B FY1: 1.6x, P/E FY1: 12.4x

Sector average 13.6% 1.6x 12.4x


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STOCK PERFORMANCE - JAPAN 9


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STOCK PERFORMANCE - CHINA 10



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STOCK PERFORMANCE – CHINA VS. JAPAN

11



China H-shr insurers

Japan insurers

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LIFE INSURANCE – JAPAN >>>>>>>>>>>>>>

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/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /

LATEST TOPICS IN JAPAN LIFE INSURANCE

SHARE PRICE DRIVERS

Investments:

» Stocks – Fund flows

» Bonds – Yield curve, Inflation

expectation

» Alternative – Real Estate,

Infrastructure

» FX impact – Yen vs. others

Sales:

» Stocks – Fund flows

» Bonds – Yield curve, Inflation

IMPLICATIONS

» Net profit

» Embedded value and new

business value

13

/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /

/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /

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JAPAN - ABENOMICS - EQUITY 14

Key message:

- Strong equity markets benefit insurers’ investment return

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JAPAN – ABENOMICS - YEN 15

Key message:

- Significant currency exposures of life insurers’ overseas portfolio

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JAPAN – TRACKING SALES 16

DESCRIPTION

» Text text

Key message:

- Regulatory changes impact sales and future profit streams

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JAPAN – OVERSEAS M&A 17

DESCRIPTION

» Text text

Key message:

- Japanese insurers seeking growth and opportunities abroad

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LIFE INSURANCE – CHINA >>>>>>>>>>>>>>

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/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /

SHARE PRICE DRIVERS

Reforms centric policies

» Market-based pricing reform

» Health care reform

» Pension reform

» Channel distribution

» Investment channels reform

» Securities market reform

IMPLICATIONS

» Product strategy changes

» Investment yield

» Capital market impact

19

/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /

/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /

LATEST TOPICS IN CHINA LIFE INSURANCE

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CHINA – HEALTH INSURANCE 20

DESCRIPTION

» Text text

Key message:

- Government-led critical illness program could be costly to insurers

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CHINA – PENSION REFORM 21

DESCRIPTION

» Text text

Key message:

- Tax-deferred pension plans gives incentives for income earner to save

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CHINA – PREMIUM GROWTH RECOVERY 22

Key message:

- Life premiums growth recovery in 2014

China life insurance monthly premium growth %YoY (YTD basis)

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CHINA – INVESTMENT DE-REGULATION 23

DESCRIPTION

» Text text

Key message:

- More flexibility in investment mix => better ALM & risk-return trade-off

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CHINA – DISTRIBUTION CHANNEL 24

Key message:

- Distribution rules lead to changes in product strategies and

profitability

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CHINA – SECURITIES MARKET 25

Key message:

- Securities market change may drive convergence/divergence of dually

listed share prices (A/H premium/discount)

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HEALTH CARE – PUBLIC VS. PRIVATE

>>>>>>>>>>>>>>

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HEALTH EXPENDITURE VS. GDP

» Japan’s total health

expenditure as % of

GDP rose by 1.1 % pts

between 2006 and

2011, vs. 0.6% pts

change for China

» Aging population,

slower GDP growth,

might have contributed

to the ratio change.

27

17.9

11.6 11.1 10.99.3 9.3 9.0 8.9

7.26.2

5.2 4.6 4.1 4.1 3.9 3.62.7

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Total health expenditure as % of GDP

2006 2011

-0.3 -0.2 -0.2

0.4 0.4 0.5 0.5 0.5 0.6 0.6 0.6 0.70.9 0.9

1.1 1.2

1.9

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

Total health expenditure as % of GDP - 5yr change

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HEALTH EXPENDITURE PER CAPITA 28

» Health expenditure per

capita stood at $4,000

for Japan vs. a mere

$278 for China

» China’s health

expenditure grew at a

relatively faster pace

than Japan.

9,121 8,608

5,939

4,952 4,875

3,958 3,609

2,286 1,616

1,121 807 346 278 202 97 95 59

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Health expenditure per capita (USD)

2006 2011

24%

18% 17%15% 15%

13% 12% 12% 12%10%

8%7% 6% 5% 5% 4%

1%

0%

5%

10%

15%

20%

25%

30%

Health expenditure per capita - 5yr CAGR

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HEALTH EXPENDITURE PUBLIC VS. PRIVATE

» Share of public health

expenditure for China

rose 15% pts between

2006-2011. Almost no

change for Japan

» Implication: More

burden on China’s

government

Encourage more

participation from

private players such as

Ping An and PICC

Health.

29

83 8077 76 75

69 6560 57 56

46 46 46

34 33 31 31

0

10

20

30

40

50

60

70

80

90

Public health expenditure as % of total

2006 2011

-10.2

-3.5-2.1 -2.0 -1.1 -0.6

0.6 0.9 1.4 1.9 2.0 2.8 4.05.7 6.3 7.5

15.2

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

Public health expenditure as % of total - 5yr change

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BLOOMBERG & BLOOMBERG INDUSTRIES

>>>>>>>>>>>>>>

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BLOOMBERG FUNCTIONS – MA <GO> 31

Key message: Easy to use function to find deals history and track

current deals

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BLOOMBERG FUNCTIONS 32

Key message: Get latest Macro and FX forecasts

ECFC <GO>

FXFC <GO>

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BLOOMBERG INDUSTRIES 33

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KEY TAKEAWAYS >>>>>>>>>>>>>>

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KEY TAKEAWAYS TOPIC: Life Insurers in Developed Japan and Developing China

» ASIA INSURANCE MARKET OVERVIEW

• Long term growth potentials for developing countries like China, India and ASEAN countries

» LIFE INSURANCE MARKETS – CHINA & JAPAN

• Japan – mature markets with prospects of portfolio investments as one of the key share price drivers

• China – developing markets filled with regulatory changes that bring opportunities and challenges

» HEALTH CARE – LESS PUBLIC, MORE PRIVATE

• Rising burden on government funded health expenditures prompt more participation from private insurers to serve the market

» BLOOMBERG & BLOOMBERG INDUSTRIES

• Comprehensive data coverage with current analysis, supported by dedicated industry analysts

35

THANK YOU STEVEN LAM – [email protected]

BLOOMBERG INDUSTRIES ANALYST

BI <GO>, BI LIFEA <GO>

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BI FOCUS DAY ASIA LIFE INSURANCE...CHINA: Non-life insurance density = $76; Non-life insurance...

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