China Life Insurance - Riding on stronger agent sales team
- China Life unveils new individual agency channel reforms ("Seed Program”) on Corporate Day
- Seed Program to be positive on long-term quality growth of the agency channel, which has been long-awaited by the market
- Given stricter regulatory rules on insurance sales, we expect VNB y-o-y growth to be a positive single-digit % in FY24/25F
- Revise down FY24F VNB assumption by 6%, lower H-share TP to HK$16 on weaker VNB growth prospects, but maintain BUY as most negatives have already been priced in; Also cut A-share TP to Rmb27.68, and maintain HOLD
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China Life held its Corporate Day during its 20th listing anniversary, providing a comprehensive presentation of the individual life insurance sales team reforms and senior care ecosystem development. Regarding the reforms of the individual life insurance sales team (the “Seed Program”), a comprehensive introduction was given on the top-level design of the new sales team, its mid-term targets, and the path to implementation. Management also discussed the philosophy, development direction, and mid-term goals of the senior care ecosystem. Below are our takeaways from the company’s Corporate Day on Oct 31 2023.
1. Development of the new individual life insurance sales team
- Methods for building sales team
This approach focuses on multiple aspects to address the contradictions between the development of the new sales team and the current agency channel management methodology, including 1) simplifying management levels (from three levels to two levels), 2) raising recruitment standards (shifting from agent-led recruitment to standardised company-level recruitment), 3) extending the time for commission distribution to agents (from the current less than 5 years to 8-10 years), 4) assessing agent performance in a longer cycle (such as one year), etc. These measures are aimed at attracting high-quality candidates with strong backgrounds to join the agent sales team, providing a feasible path for agents to plan for their long-term career path.
- The mid-term target
- Our view
2. Senior care ecosystem development
- Plan’s overview
- Our view
Our first forecast under IFRS 9/17
China Life has already released its 3Q23 results under the new accounting rules IFRS 9 and IFRS 17. Due the impact on investment performance, the insurer’s net profit decreased by 36% y-o-y to Rmb35.5bn in 9M23, missing expectations. VNB decreased by est.7% y-o-y in 3Q23, mainly due to the lowering of assumed interest rates from 3.5% to 3.0% and the stricter regulatory oversight of bancassurance channel sales.
We are publishing our forecasts for the first time based on the IFRS 9/17 standard. We expect a net profit of Rmb36.7bn for FY23F, with y-o-y growth of 30.5%/10.1% for FY24F/25F, respectively. The steady growth of the insurance service results is expected to be offset by weak investment performance in the short term in FY23F and we expect the investment results to return to normal in FY24F/25F. We slightly revise up our VNB forecast for 2023 by 1.9% and revise down our 2024 VNB by 6%, to reflect 1) better-than-expected sales growth prompted up by the lowering of the assumed interest rate from 3.5% to 3% in 1H23 and 2) stricter regulatory restrictions to cool down insurance sales in 2H23 and onward. The VNB for 2023/24/25 is expected to be Rmb40.4bn/41.8bn/44.9bn, respectively.
Due to the weaker investment performance that is likely to sustain in the short term and weaker VNB growth in FY24F, along with rolling it over to FY24F, we revise down our H-share TP from HK$18 to HK$16 based on 0.28 FY24F P/EV (previously: 0.33x), but maintain a BUY rating as most negatives have already been priced in. We also maintain a HOLD rating for China Life’s A-shares, with the TP revised down from Rmb31.69 to Rmb27.68.
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