insurance enterprise research ping an insurance (group) co of china ltd

Insurance Enterprise Research Ping An Insurance (Group) Co of China Ltd

Background

Background

Key

driversKey

drivers EstimateEstimate Conclusion

Conclusion

Content

Background

Background Key driversKey drivers EstimateEstimate ConclusionConclusion

Content

Background Key Drivers Estimate Conclusion

Structure

Goal

Analyze the prospect for the development of Ping An Insurance(Group) Co of China Ltd and its investment value. Try to put forward reasonable and practical advise on its enterprise combination distribution and product development

Corporate overviewFinancial updates

External factors Internal factors

1.1 Executive Summary Background Key drivers Estimate Conclusion

Method

Financial analysis

Du Pond model

1.2 Corporate overview Background Key drivers Conclusion

PAIC Profile1

Being China’s first shareholding structure insurance company, Ping An is committed to leverage its banking and investment businesses to achieve long-term, stable and health growth while creating sustainable and greater value for its stakeholders.

Ping An Insurance (Group) Company of China, Ltd was established in 1988 in Shenzhen. Today it has developed into an integrated financial service conglomerate with insurance, banking, and investment business at its core. The Group’s stocks are listed on the Hong Kong Stock Exchange under stock code "2318” and on the Shanghai Stock Exchange under "601318".

Headquartered in Shenzhen, Ping An set up offices in strategic locations including Hong Kong, Shanghai, Guangzhou and Beijing. In line with increasing business diversity, Ping An is determined to become an internationally leading integrated financial services group.

In 2008, Ping An was included in Fortune Magazine’s “Global 500” list, ranking No.1 among China’s non-State owned enterprises. In June 2009, Ping An was included in The

Financial Times Global 500 companies list, ranking second among insurers globally, eighth among Chinese

enterprises and first among China’s non-State owned firms.

In Forbes Magazine’s Global 2000 list of companies, Ping An was ranked No.141.

Insurance

Banking

Investment

Ping An LifePing An Property & CasualtyPing An HealthPing An AnnuityPing An Hong Kong

Ping An Bank

Ping An TrustPing An SecuritiesPing An Asset ManagementPing An Overseas HoldingsPing An Asset Management (Hong Kong)

Ping An Insurance (Group) Company Of China, Ltd.Ping An Insurance (Group) Company Of China, Ltd.

Estimate

Background Key drivers Conclusion

PAIC Milestone & Ownership Changes 2

1988 only 2 Industrial and Commercial Bank (49%) and China Merchants Holdings (51%).

1988 only 2 Industrial and Commercial Bank (49%) and China Merchants Holdings (51%).

1992 Shareholders increased to 5 China Merchants, ICBC Shenzhen, China Ocean Shipping Company, the Municipal Bureau of Finance and safe staff partnership fund.

1992 Shareholders increased to 5 China Merchants, ICBC Shenzhen, China Ocean Shipping Company, the Municipal Bureau of Finance and safe staff partnership fund.

1993 Shareholders increased to 114Morgan and Goldman Sachs each contributed $ 35,000,000 price of shares, each holding 5.56%.

1993 Shareholders increased to 114Morgan and Goldman Sachs each contributed $ 35,000,000 price of shares, each holding 5.56%.

1997 more changesThe COSCO Group, the Shenzhen Municipal Bureau of Finance, ICBC(15%), China Merchants(15%)and New Horse are the five major sponsors. Goldman Sachs and Morgan Stanley's stake both increased to 7.63%.

1997 more changesThe COSCO Group, the Shenzhen Municipal Bureau of Finance, ICBC(15%), China Merchants(15%)and New Horse are the five major sponsors. Goldman Sachs and Morgan Stanley's stake both increased to 7.63%.

2002 HSBC entered HSBC spent $ 600,000,000 and ranked the second largest shareholder (10%).

2002 HSBC entered HSBC spent $ 600,000,000 and ranked the second largest shareholder (10%).

2004 HSBC dropped HSBC spent 1.2 billion to hold 9.9% Ping An shares, becoming the largest shareholder.

2004 HSBC dropped HSBC spent 1.2 billion to hold 9.9% Ping An shares, becoming the largest shareholder.

2005 Goldman & Morgan Stanley decreasedHSBC bought 9.91% equity of Ping An from Goldman Sachs and Morgan Stanley, shareholding rising to 19.9%.

2005 Goldman & Morgan Stanley decreasedHSBC bought 9.91% equity of Ping An from Goldman Sachs and Morgan Stanley, shareholding rising to 19.9%.

Shenzhen Ping An Insurance CompanyShenzhen Ping An Insurance Company

Morgan Financial Group and Goldman Sachs Foundation participate the investment of shares for PAIC.

Morgan Financial Group and Goldman Sachs Foundation participate the investment of shares for PAIC.

Expanded to 2.5 billion of capital Ping An Trust and Investment Corporation and China Ping An Insurance Overseas (Holdings) Company established

Expanded to 2.5 billion of capital Ping An Trust and Investment Corporation and China Ping An Insurance Overseas (Holdings) Company established

The former U.S. vice president of Lincoln National Group, Stephen Meyer, officially joined Ping An as Chief Actuary

and Senior Consultant.

The former U.S. vice president of Lincoln National Group, Stephen Meyer, officially joined Ping An as Chief Actuary

and Senior Consultant.

The HSBC Group formally signed "Subscription Agreement" to subscribe for 10% stake in Ping An.

The HSBC Group formally signed "Subscription Agreement" to subscribe for 10% stake in Ping An.

Listed on Hong Kong Stock Exchange Main Board of the Exchange-- "Ping An of China", Stock Code 2318

Be selected in Morgan Stanley Capital International China Index constituent stocks and Hang Seng China Enterprises

Index.

Listed on Hong Kong Stock Exchange Main Board of the Exchange-- "Ping An of China", Stock Code 2318

Be selected in Morgan Stanley Capital International China Index constituent stocks and Hang Seng China Enterprises

Index.

Successfully acquired 89.24% stake in Shenzhen Commercial Bank and get involved in credit card business.

Successfully acquired 89.24% stake in Shenzhen Commercial Bank and get involved in credit card business.

Listed on the Shanghai Stock Exchange-- "Ping", A share stock code "601318"as the A shares of the second

insurance stocks.

Listed on the Shanghai Stock Exchange-- "Ping", A share stock code "601318"as the A shares of the second

insurance stocks.

1994

1996

1999

2004

2002

2006

2007

1988

1.2 Corporate overview Estimate

Conclusion

Source : enterprise annual report

Year

Ratio

return on equity increase mainly because the increase of operating efficiencyeconomic crisis had bad effect on operating and finance

ROE

ROI

Financialleverage

trend : steady increase inflection point : 2008

trend : dramatic increase inflection point : 2008

trend : steady increase inflection point : 2007

Operatingefficiency

trend : increase inflection point : 2008

Asset useefficiency

trend : slight increase inflection point : 2007

1.3 Financial updates Key drivers Conclusion

Du Pont Analysis

EstimateBackground

Background

Background

Key

driversKey

drivers EstimateEstimate ConclusionConclusion

Content

Internalfactors

: Analyze and assess the current situation of PAIC

Present conclusion for PAIC

2 Key drivers Background Key drivers ConclusionEstimate

Goal Externalfactors

EconomyEconomy

Social systemSocial system

Legal & PollyLegal & Polly

SalesSales

CompetitivenessCompetitiveness

Asset scaleAsset scale

Loss ratioLoss ratio

Premium income growth ratioPremium income growth ratio

Background Key drivers Valuation Conclusion

Economy1

2.1 External Factors

GDP rate of increase

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Persistent economic growth and economic reform promote the rapid growth of GDP, creating broad market space for insurance development.

Stable growth of residents' disposable income spures growth of insurance demand

Politics & Legislation3Society2

Low level of Social security increases people's life uncertainty and risk, making insurance demand increasing .Affecting by income and concept, most insurance products buyers are from cities.Family structure miniaturization weakens internal risk resistance capacity, increasing insurance demand.

“Insurance Law ”

China Insurance Regulatory

Commission

China Insurance Industry

Association

Isolvency quota& regulatory index

management regulations

1995 1998 2001 2003

Stable political environment attracts numerous investors to join insurance industry.Perfect legal environment conducives to standard management of insurance companies.

Background Key drivers Valuation Conclusion2.2 Internal Factors

Sales1

Insurance

Life insuranceHealth insuranceProperty insurance Corporate pension funds

Banking Investment

DepositLoanCredit cardOnline banking

Trust and investment productPing An fundFinancial planning productSecurity underwriting serviceFuture investment

China Ping An has a clear and comprehensive product system with advanced financial engineering skills in product designing .It provides diversified and personalized financial products and services for its clients.

Conclusion

Background Key drivers Valuation Conclusion

China Ping An has fostered a good and healthy image with professional skills and excellent service among clients. Its sales network has covered nearly the whole country.According to Gallup poll, the customer satisfaction of China Ping An took the leading position in insurance industry.

Conclusion

2.2 Internal Factors

Sales network

Competitiveness

Revenue of main business

2

Competitive advantage in the developed regions

Rank of life insurance company's premium in Beijing(July,2010)

Premium of Ping An Life ranks first in Beijing. The same situation in Shanghai.

Contribution of Integrated Marketing



Background Key drivers ConclusionEstimate2.2 Internal Factors

Integrated financial services -->Resource Integration

Premium Growth

Ping An has a great competitivenessConclusion

The statistics of this graph covered over 60 months from Jan. 06 to Dec. 10. They have shown a long-term tendency of increasing premium.

Premium Growth (billion yuan ) Premium Growth of Properly Insurance (billion yuan )




Asset scale of the insurance company3

The total assets of Ping An Insurance company amounts to 885.419 billion, more than the industry average, 33727.10 billion. Enterprise size is very important in the insurance industry, for it is closely related to reliability and reputation of a company, especially in China, where the economy is growing rapidly and the system of laws and regulations is still imperfect. The unique structure of assets and liabilities of the insurance industry means that it has to rely on public confidence to survive. People’s thoughts of “ the bigger, the stronger” attach significant importance to asset scale.

Conclusion


PAIC assets and industry total assetsCNY 000,000,000


Loss ratio4

Due to the lack of investment channels, the main source of profits of domestic insurance companies depends on the low loss ratio. The loss ratio of Ping An Insurance(Group) Co of China Ltd in 2009 was 26.74 percent, higher than the average loss ratio of the industry at the same year, which was 25 percent. In despite of a loss ratio of more than 80 percent, the revenue of foreign insurance company mainly comes from investment. Some developed countries even have a loss ratio of 100 percent, but it does not affect the profitability of those insurance companies.

Loss ratio of PAIC and average level

Loss ratio5

According to the 2009 premium income of the four insurance businesses released by Ping An Insurance, the total amount was 173 billion （ RMB）， a yearly growth of about 34 percent, much higher than the industry average growth,13.8 percent. Because of the gap between domestic insurance market and asset market, premium income is the main part of the profit of insurance companies, therefore, the change in premium income became the prime factor in performance change of insurance companies.


CNY 000,000,000PAIC premium growth

Background

Background Key driversKey drivers EstimateEstimate ConclusionConclusion

Content

3 Financial Analysis

Comparison inner insurance industry

Growth ability Analysis

Among all the public companies innerinsurance industry PAIC owns fewer total shares &float A

shares than CLIC PAIC has advantages in growth measures

compared with both CLIC & PIC PAIC has better net profit ratio of

sales ， which means its shares bigger profit margin

All Source: PAIC Annual Report

Among all these measures PAIC increases its earnings greatly in 2009 PAIC ‘s growth ability is linked with economic situation tightly ， since it increased fast in 2007& decreased

greatly in 2008 because of economic crisis

Key drivers ConclusionEstimateBackground

Profitability Analysis

Business efficiency Analysis


The profits these years keep in a high level except year 2008

PAIC’s asset return increased sharply in 2009 than in 2008 ， which indicates PAIC has gradually recovered from the economic crisis

The net assets turnover efficiency increased generally except 2008

The total assets turnover efficiency fluctuated a little ， which shows a stable assets utilization。

Key drivers Conclusion3 Financial Analysis EstimateBackground

Debt Paying Ability Analysis Cash Flow Analysis

*CFOA— cash flow of operation activities


A/L Ratios (2005-2009)>80%:

debt scale —too large debt paying ability—weak

A/L Ratio bottomed in 2007 due to the excellent performance resulting from the prosperous economy and bull market, then increased in 2008

because of the financial crisis and the failure of investment in Fortis Group.

Cash flow conditions of PAIC(2005-2009)—relatively enough as cash flows per share is about 4-12. However, too much capital going into

investment fields leads to the relatively shortage in cash flow of 2007.

Cash flow structure: large expenditure in investment;

steady revenue in operation and raising funds

CNY 000,000

Key drivers Conclusion

Conclusion

CNY 000, 000 CNY 000,000

3 Financial Analysis EstimateBackground

Background

Background Key driversKey drivers EstimateEstimate Conclusio

nConclusio

n

Content

Conclusion Background Key drivers Valuation Conclusion

Emerging Maturity DeclineGrowth Time

Dollar

1 External Analysis• Immature law• Inefficient Policy• Unhealthy social system2 Sales• Only insurance product• Not involve in wealth planning• Inadequate service3 Competitiveness• Too high premium for the majority• Weak reputation• Monotonous product• Low return4 Market Potential• Huge market potential

China

In terms of industry’s development, the insurance have great potential. As PAIC belongs to the leading enterprise in the insurance industry, it will maintain the momentum of rapid speed of development.

Suggestion

The rate of payment of PAIC Group is slightly higher than the industrial average, but remain stable. The total asset of PAIC is about 20% of the industry, which provides the great confidence and reliability for its customers. Premium of Ping An experienced rapid growth, far above the industrial average. In terms of relationship with external factors, the performance of PAIC’s profit is closely related to the economic cycle, especially in 2008,when the financial crisis led to a serious impact. We predict that future economy will gradually get rid of the crisis, and enter an economic recovery phase, so it’s good for PAIC’s development. In terms of financial indicators, PAIC has a high debt ratio. Investors should consider their financial stability. Consider its 2008 investment losses in overseas markets and currently goes into the acquisition of Shenzhen Development Bank, which shows PAIC will be in the adventure mode of development. So investors should be cautious when making decisions.

Industrial life cycle curve

Thank you

insurance enterprise research ping an insurance (group) co of china ltd

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