China’s insurance market is massive. In 2018, total insurance premiums in China stood at RMB 3.8 trillion (US$563 billion) and this will only get bigger – much bigger. According to Swiss Re Institute, total insurance premiums in China are expected to more than quadruple to US$2.36 trillion by 2032.
Chinese insurance companies benefit from powerful tailwinds such as an ageing population, low penetration rates, and rising incomes. Insurers also have a big margin opportunity in utilising digitisation technology such as artificial intelligence (AI) and big data.
With AI, insurance companies can process claims more efficiently, spot fraud easier, and train insurance salespeople faster. With big data, meanwhile, insurers can better price an insurance policy and potentially realise improved margins.
While the tailwinds augur well for Chinese insurance companies like Ping An Insurance Group Co (2318.HK) and China Life Insurance Company Limited (2628.HK), let’s take a dive to check which two of these insurance companies will be a better addition for your current portfolio.
#1 Ping An Insurance (2318.HK)
Ping An Insurance (Group) Company of China (2318.HK), is one of the fastest-growing insurance companies in the world. The China-focused insurance giant has seen its revenue increase eight-fold in the last 10 years, while net profit increased by more than five-fold.
It is no surprise to see its shares have also done tremendously well over the last 11 years, rising more than 500%, while the company has managed to dish out a dividend each and every year since then.
There are two obvious reasons why Ping An has so much more room to grow
- The insurance market still have plenty of room to grow, the insurance market has tripled since the past decade, the low penetration rate of insurance coverage in China as compared to other developed nations
- The group has a banking segment, which it first entered into through an acquisition of a Chinese bank in 2003. It also owns stakes in US-listed Autohome, a content platform for the automobile market in China and Hong Kong-listed Ping An Healthcare and Technology Company Limited. On top of that, it has stakes in other private companies that delve into Fintech and asset management among others.
- The increasing diversification will only create more values to the group as their banking arm will allow them to cross sell their business to their clients
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#2 China Life Insurance (2628.HK)
For the first half of 2019, China Life’s total sales rose 11.6% year-on-year to RMB 448.2 billion (US$63.7 billion) while its gross written premiums rose 4.9% year-on-year to RMB 377.97 billion. For the time period, China Life realised a weighted average return on equity (ROE) of 11.1%.
On the surface, it would seem that China Life has greater growth potential simply because it gets the vast majority of its sales from growth-friendly China. It has less penetration to other market as compared to Ping An or AIA, where the latter has more exposure to Hong Kong and other countries in Asia.
While this may be less superior compared to Ping An Insurance, China Life has delivered a 75% increase in share price year to date as compared to Ping An, which is up 57% year to date, quite a satisfactory performance for its size.