[看好评级]FINANCE：REVIEW AND ANALYSIS OF CHANGES IN INSURANCE STOCK PRICES IN THE PAST 11 YEARS
We mainly focus on three factors: secondary market conditions, long-term interest rate andpremium growth rate, to analyze how each factor impacts excess returns of insurance industry’sstocks.
1. Secondary market conditions: insurance stocks’ high beta implies that secondary marketconditions are the core factor of whether insurance stocks can outperform the market.
In 2012/2014/2017, while CSI 300 index rose by 7.6%/51.7%/21.8%, insurance industry’sstocks gained substantial excess returns which respectively outperformed the market by18/33/60 pcts. In contrast, insurance stocks underperformed the market in most years whenthe market was down. Besides, as most investors prefer to invest in blue-chip stocks ofinsurance industry, they gain more returns from insurance stocks when large-cap stocks risehigher than small-cap ones.
2. Long-term interest rate: long-term interest rate is an important factor impacting insurance stockprices and whether valuation recovery emerges.
Among long-term interest rate’s various influences on insurance stocks, the most importantone is the impact on ROI of new and maturity capital. The trend of long-term interest rateshows a positive correlation with excess returns of insurance stocks, but it has not so greatimpacts as secondary market conditions. When long-term interest rate keeps low, its uptrendenables insurance industry to recover valuation, as is the case in 2017. The 10-year bond yieldgradually rose from 3.05% （a low level） at 2017’s beginning to 3.93% at 2017’s yearend,boosting insurance industry to recover valuation. In contrast, CSI 300 index increased muchhigher in 2014 than in 2017, but excess returns of insurance industry in 2014 were much lowerthan that in 2017. We believe that sharply falling long-term interest rate from a high level in2014 caused the lower excess returns.
3. Premium growth rate: in general, premium growth rate shows few correlations with whetherinsurance industry can gain excess returns; but during a particular period of time, low premiumgrowth is one of the key factors making the industry underperform the market.
We believe that it was in 2011 and 2018 that premium growth rate made negative impacts oninsurance stock prices. Q112 and Q118 witnessed a large underperformance of insuranceindustry, due to new premium plunge.
As of March 5th, 2019, insurance industry rose by 29.5% and outperformed CSI 300 index by 2.7pcts, showing a high beta amid the market surge. Given that an uptrend in secondary marketcontinues, we can refer to the cases in 2014 and 2017 to form expectation; given that the uptrendstops later, we can refer to the cases in December 2012 and in late June 2013.
Currently, with long-term interest rate remaining low as well as in a downtrend, the market’sconcern about liability costs is one of the core factors hindering insurance stock price growth. Giventhat long-term interest rate rebounds, insurance industry may recover its valuation to some extentwithin 2019. Overall, we maintain mid-and long-term allocation into insurance industry whosevaluation remains low.
Potential risks: less-than-expected premium; interest rate downtrend; decline in ROI
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