Ping An Insurance Group (H):Above expectation;life quality and disclosure;dividend up

Ping An’s FY16 results were solid on most fronts. Two factors make EVreporting not directly comparable with FY15: 1. Switching to China riskorientedsolvency system (C-ROSS): Ping An benefited given high mix ofprotection business; 2. Ping An opted for more conservative long-terminvestment return assumption (5% vs. 5.5% prior), while keeping discountrate unchanged. This is negative for reported EV, but we believe the markethas already priced in a higher discount to EV, and would welcome thechange and the clarity. Life new business grew 32%. Like-for-like growth (on2015 assumptions) was 49% (vs. 1H:43%). Group EV grew 16%, vs. 25% on2015 assumptions (1H:16%). Ping An Life continued to lead and improve onquality. That is evident from the new disclosures: long term protectionproduct is 74.5% of NBV (+4.7ppt yoy), i.e. profitability is less reliant oninvestment spread, with interest margin only 34% of new business profit.

P&C combined ratio was 95.9% (2015: 95.6%), vs GSe 94.7%. Solid but itimplies a big profitability decline in 4Q (9M: 94.9%). We believe this was dueto catastrophe related losses, likely in the commercial property line.

Dividend/capital: FY dividend was Rmb0.75 per share, +42% yoy, 34%higher vs. company-compiled consensus of 0.56. Ping An Life up-streamedRmb17bn to Group in 2016, vs. Rmb7bn in 2015. This was likely from capitalrelease under C-ROSS. Investment: total/net investment yield was 5.3%/6%. Allocation to non-standard credit assets was stable 15% (1H: 14%).

NPAT was Rmb62bn, +15% yoy and 5% below GSe. Read-across forsector: We think this confirms our view of: strong NBV; Likely assumptionchanges; P&C 4Q catastrophe losses could be larger than expected.