China Pacific Insurance:EV/earnings in line,better life growth,P&C improved

Bottom line: CPIC’s embedded value, book value, and earnings were largely in linewith expectations. Life NBV growth surprised on the upside (+59% vs. +40% GSe),consistent with the strong growth trend we have observed across the industry. P&Cinsurance also reported better underwriting results yoy, mainly in the non-auto lines,but overall profitability continued to lag the main competitors (PICC/Ping An).

Life insurance NBV growth was well ahead of GSe (59% yoy vs. 40%), driven bylarge increase in agent headcount (49%/33% yoy/YTD) and strong sales oflong-term health insurance products. We note that NBV margin for traditionalproducts, which includes long-term health insurance, expanded 24pp yoy to 69%in 1H17.

CPIC continued to make progress in improving P&C profitability, with combinedratio (CR) improving 0.7pp yoy to 98.7%, ahead of GSe (99.7%). However, thisremains well behind major competitors (95.5%/96.1% for PICC/Ping An), whilepremium growth was also slower (7% vs. 11%/24%). We recognize the positivetrend, but maintain that it will still take some time before CPIC P&C can close theoperational gap with PICC and Ping An.

Net profit (6% yoy vs. 4% GSe) and book value (0% YTD vs. -1% GSe) were inline with expectations, as life earnings growth (3% yoy) was partially offset by adecline in P&C earnings (-5% yoy). ROE was 10% in 1H17 (annualized).