PICC P&C’s Auto Underwriting Profitability Likely to Improve in 2022; Market Share Gains Continued

PICC P&C’s 7.2% year-on-year net profit growth missed our expectation on higher-than-expected underwriting losses for non-auto insurance business and weaker investment return in the fourth quarter. We retain our fair value estimate of HKD 9 per share as our weaker profitability assumption of non-auto insurance business was offset by better profitability outlooks for auto insurance business. Dragged by a sharp increase in natural disasters-related claims and intensifying competition, non-auto insurance business saw a combined ratio deteriorating to 105% in the second half, up 47 basis points from the second half of 2020. The auto insurance combined ratio reached 97.3%, beating our expectation for 98%. This reflected PICC P&C’s strong underwriting profitability despite lower average pricing and surging natural disasters-related claims in 2021. Its combined ratio rose 68 basis points to 99.6% from 98.9% in 2020. If excluding the net impact of CNY 8.3 billion losses related to natural disasters, we estimate this ratio would improve to 97.5%.