Winning Policies
OF THE VAST POTENTIAL MARKETS THAT EXIST in China, one of the most treacherous in recent years has been insurance, buffeted by nimble foreign competition and precariously low interest rates that have curbed income from investments in domestic bonds. China's insurers are radically restructuring, and none has done so more successfully than Ping An Insurance.
Ping An (which means "peace and safety") is China's second-largest life insurer, after China Life, and third-biggest nonlife insurance company. Life insurance accounts for some 90% of its revenue.
Fans of Ping An, whose shares trade in Hong Kong (ticker: 2318.HK), are impressed by its potential. Says Christopher Smart, manager of Pioneer Emerging Markets Fund in Boston: "The compelling case is a demographic one: China is a country of a billion people, with a story of rising incomes and savings. This is a secular growth story."
Unfortunately for investors thinking of buying the shares, they've jumped almost 23% this year, to HK$17.55, versus 4.3% for the Hang Seng Index, partly on renewed enthusiasm for Chinese stocks and, particularly, Chinese domestic plays. So, while they look like an outstanding long-term value, waiting for a pullback in the share price would make sense.
COO Louis Cheung says that Ping An has big ambitions -- and a realistic plan to realize them.
The company is well-known to international portfolio managers and soon may become better-known to investors abroad, as it invests more outside its homeland. The nonconvertibility of China's currency, called the renminbi or yuan, precludes most domestic investors from plunking down any money overseas. However, Beijing is relaxing those limits, partly because insurers need yield to make up for absurdly low government-bond rates.
Ping An has been investing in initial public offerings of Chinese companies overseas. "It's a natural hedge against the renminbi," Louis Cheung, the insurer's chief operating and financial officer, said in an interview. "We are buying such stocks very selectively." That's likely to increase as more Chinese stocks become available -- China is set to offer billions of dollars of stock in new companies this year -- and may even extend to other foreign shares. Cheung won't specify which companies Ping An owns, but the company is thought to be invested in China Construction Bank (939.HK) and PetroChina (whose American depositary receipts trade in New York under the ticker symbol PTR).
Eventually, Ping An's investments abroad will expand even more when the company starts selling foreign-currency-denominated life-insurance products, which Cheung expects could happen in the next year or two. These should be popular, particularly among parents who want to send their children overseas for schooling. U.S.-dollar-denominated policies are widespread in Hong Kong for precisely that purpose.
True, investing outside China has its hazards for the Chinese: It's subject to taxes (Chinese bonds aren't) and currency risk. Morgan Stanley figures that, assuming a 3.5% coupon on Chinese government bonds, a 33% corporate tax rate, and 3% renminbi appreciation, a foreign investment would have to return 8.5% to merely break even. However, for an insurer in need of a steady income screen, the potential rewards easily outweigh the risks.
For now, Ping An can invest up to $1.75 billion abroad, the amount of the foreign-currency reserves it raised in its 2004 initial public offering. Some 10% of that, or $175 million, can go into stocks of Chinese companies listed overseas, including Hong Kong-listed H shares and red chips. It can put the remainder in foreign government bonds and domestic mortgage bonds rated single-A or above.
Widening the scope of Ping An's investments, to areas like real estate and infrastructure, would go a long way toward making up for a mismatch of assets and liabilities at Ping An, which, like other Chinese insurers, which, like other Chinese insurers suffered as rates plunged to a nadir of 2.25% in June 1999. While the government at about that time capped payouts on policies at a maximum 2.5%, about 40% of Ping An's policies still have average liability rates of 4.3%, versus the insurer's average investment return of 4.1%. And even though insurers have been allowed to own domestic A shares, that market has been a dismal performer, too.
Yields slid again in 2005, with that of the seven-year Chinese government bond dropping by 0.92 of a percentage point, to 3.46%. SHK Financial Group reckons that Ping An's earnings slip 5.3% for every 0.5-percentage-point decline in bond yields.
Chinese regulators want to ensure that its insurers can compete with the small but nimble foreign joint-ventures that are scarfing up market share. Ping An has 17% of China's life-insurance market -- the world's eighth largest, at about RMB300 billion-plus. That's well behind China Life 48%, but significantly ahead of No. 3 China Pacific's 11%. American International Group (AIG), the big American insurer that has done well in many parts of the Far East, has just 1.8%.
Ping An's share had been 30% before, but in an effort to boost efficiency and profitability, it slashed its sales force over several years to 200,000 from 300,000 and retrained the people it kept on. Its market share is reviving, however, even as the company's profitability remains superior to its chief rivals'. (Ping An also has 9.5% of the property and casualty market.).
In the past few years, China has relaxed rules on a number of investments. Insurers, which had been severely constrained from investing in equities, now have more latitude to do so. Today, Ping An can place 5% of its total assets in stocks, 15% in stock funds, and 30% in convertible bonds. Some 4% of Ping An's assets are now in stocks, versus 5% for China Life and 8% for PICC Property & Casualty, another big insurer.
Ping An, founded in 1988 by now chairman and CEO Mingzhe "Peter" Ma, is certainly up to the challenge of revamping its business. Since 1999, it has radically restructured to address declining yields, sacrificing volume growth to write more profitable universal-life policies. The company is due to report 2005 earnings on March 30; Morgan Stanley expects earnings of RMB4.2billion, or RMB0.68 per share, on revenue of RMB65.3 billion, up from profits of RMB3.1 billion in 2004 on revenues of RMB63.3 billion.
For 2006, the consensus among analysts is for profit of RMB0.87 per share. CSFB reckons that Ping An's profit will advance 25% annually for the next three years, as net premiums climb 11% a year.
Today, more than half of Ping An's first-year premiums come from regular policies, on which premiums are paid periodically, versus 20% for China Life, whose 600,000 salespeople have focused on lower-margin single-premium coverage. "With regular long-term products, you get 10 to 20 times better margins," says Cheung.
In fact, Ping An's margin on new policies has snapped to 30%-plus from 20%, estimates HSBC Global Research. In contrast, China Life's margin is less than 15%, HSBC says. And that leaves lots of room for profitability to improve. Cheung reckons that each agent brings in RMB100 for each policy. That can at least double.
For Cheung & Co., the holy grail is top-line growth. Today, Ping An is a favorite insurance brand, and the firm serves some 30 million customers. Growth in nonlife insurance will pace China's blistering economy, but life insurance is much more promising as China's population grows older and richer. Ping An figures that Chinese households are amassing wealth at an 11% annual clip, to an estimated average of RMB92,600 in 2010 from RMB 32,500 in 2001.
To prepare, Chairman Ma hired a slew of foreigners to upgrade systems and strategies at Ping An. One was Cheung, a former McKinsey Consulting partner who joined the firm in 2000, after McKinsey did a lengthy study to improve Ping An's systems.
One of Ping An's key aims is to get into banking and asset management. China saves 50% of its gross domestic product, and the single largest asset class for individuals remains bank deposits.
Thus, giant HSBC Holdings (HBC in the U.S.), the London-based banking organization, owns 20% of Ping An (foreigners are limited to a 25% stake under current law) and is helping improve the insurer's risk management and auditing practices. The two also have a joint venture -- Ping An Bank. "The sales capability of Ping An with the back office of HSBC is a most powerful combination," says Cheung. (HSBC also owns 20% of publicly traded Bank of Communications, China's fifth largest bank.)
Currently, Ping An is in the running to buy Guangdong Development Bank in a consortium with ABN Amro (ABN); Cheung says that Ping An is looking for small "accretive" deals. He adds that Ping An's business will rest on three legs over the next decade.
The first is life insurance -- including policies to cover specific major diseases, and new pension-planning products for individuals.
The second is fee-based asset accumulation, mostly for pensions, some through mutual funds. One big product will be corporate pensions. Now, there are $14 billion of assets in these plans, and Ping An has a 27% market share; the plans will be rolled out fully in 2009. "Insurance companies should be one of the biggest pension managers in Asia," says Cheung. "A good 20% to 30% share of the 15 to 20 trillion renminbi in savings will go into pensions. The potential there is huge -- tens of trillions of RMB."
The third sector is consumer finance, "lending a small amount of money to a lot of people," as Cheung puts it. "Our 30 million-plus customers will become 100 million-plus in 10 years. In retail banking, liabilities are long-dated and assets are short-dated. In life insurance, liabilities are short-dated, but assets are long-dated. It's a perfect match."
One caveat: HSBC's lead insurance analyst, John Russell, thinks that Ping An's balance sheet could be squeezed as it seeks new business while dealing with the burden of old policies that have been yielding more than the company has been able to generate from investments. However, Cheung says that Ping An has plenty of capital. In addition, Russell notes that the company could free up some capital by securitizing policies, as U.K. insurers have done, or selling more shares.
For now, Ping An is handling this problem by diversifying its assets swiftly, writing new policies and controlling costs. Maintenance expenses as a percentage of renewal premiums are 10%, versus 14% or so for China Life. And eventually, yields will rise; interest rates in China -- in fact, across Asia -- are unsustainably low.
The Bottom Line
With a cogent blueprint for growth, Ping An is a long-term buy, but only after its stock retreats from its current level.Lately, brokers have taken fright at Ping An's sharp advance as the stock blew through their price targets. The shares now trade at 4 times book and 32 times trailing 12-month earnings, according to Bloomberg, versus 1.9 and 18 for American International Group, 1.3 and 12 for MetLife, and 1.6 and 13.2 for Allianz. Since its 2004 listing, Ping An stock is up 70%.
The premium valuation could cap the shares in the short term. Cautions David Zhang, manager of the Dynasty Fund in Shanghai: "You can't widen the P/E by much more." Yet Zhang plans to hang on to his Ping An shares, which he's had since the 2004 IPO, because he thinks they're a sound long-term investment.
Another fan is Patrick Lemmens, who steers the ABN Amro Financials fund in Amsterdam. "The advantage of Ping An is they're ahead in terms of management, accounting and distribution. What's the worth of long-term growth? For a select group of international life insurance companies that are managed very well, it makes sense to pay a relatively high price."
Cheung certainly agrees. "We are a great franchise, a strong brand, a 30-million-plus customer base with huge room for improvement and high growth in retail financial services," he says. "Growth of 10 times what we have is not implausible."
改革造就新“平安”
在中国各个蕴含巨大潜力的市场中，近年来最变化莫测的市场之一就是保险业，它一方面要应对经营灵活的外资保险公司的竞争，同时还受到不稳定的低利率水平的制约──低利率压制了保险公司在国内债市的投资收益。但中国的保险企业正在进行大力改革，而这其中，做得最成功的当属平安保险(Ping An Insurance)。
平安保险在中国寿险市场排名第二（仅次于中国人寿(China Life)），在非寿险市场排名第三。但寿险在其收入总额中占90%左右。
看好在香港上市的平安保险的投资者对它的巨大潜力非常著迷。波士顿Pioneer新兴市场基金经理人克里斯托夫?斯马特(Christopher Smart)说，平安的潜力主要来自中国的人口现实：中国有十多亿人口，人们的收入和储蓄水平在不断上升。这确保了保险业务未来的增长前景。
对那些有意介入该股的投资者来说，或许有点不幸的是，在对中国股票特别是中国国内市场股票的新一轮投资热情推动下，该股今年以来已上涨了23%，达到17.55港元，同期香港恒生指数的涨幅只有4.3%。因此，虽然平安的股票看来应该是一只具有长期价值的股票，但眼下或许还是应该等待逢低买进的机会。
该股目前在国际投资组合经理人中间已是耳熟能详，或许随著它在海外越来越多的投资，很快它还会为国外投资者所熟知。人民币不能自由兑换的现行政策使中国投资者不能在海外投资，不过，中国政府正在放松这方面的限制，这在一定程度上是因为，国内政府债券的收益率极低，为求补偿，保险商需要通过海外投资获得更高的收益。
平安保险一直在投资首次在海外上市的中国企业。该公司营运及财务总监张子欣(Louis Cheung)在接受采访时说，这些投资是对人民币低收益的一种自然的对冲。他说，他们在选择股票时是非常有针对性的。
预计今年中国企业将发售价值数十亿美元的股票，因此，平安在IPO股票上的投资可能还会增加，此外，或许它还会将此类投资扩大到其他外国股票。
张子欣不愿透露平安投资的IPO股票，不过外界传说中国建设银行(China Construction Bank.)和中国石油(PetroChina)都有它的投资。
一旦平安保险开始出售以外币买卖的寿险产品（据张子欣预计，这一步将在一、两年后实现），那么公司的海外投资将进一步扩大。出售外币寿险产品应会受到欢迎，特别是在那些希望送子女到海外留学的中国家长中间更是如此，美国的美元保单在香港非常走俏就是因为这个原因。
当然，在国外投资对中国人来说也有不利的一面：这些投资要课税（投资中国国债无需交税），而且还会有汇率风险。据摩根士丹利(Morgan Stanley)推算，假设中国国债的票面利率是3.5%、企业所得税率是33%、人民币升值3%，那么，海外投资的回报率要达到8.5%才能（与投资中国国债）持平。不过，对于需要获得稳定收入来源的保险商来说，潜在的投资回报会大大超过风险。
眼下，平安可用于海外投资的资金达17.5亿美元，这是其2004年进行IPO时筹集到的外汇储备资金。其中的10%即1.75亿美元可以投向在海外上市的中国公司，包括在香港上市的H股以及红筹股。其余部分它可以投向外国政府债券和评级不低于A的国内抵押债券。
向房地产和基础设施等领域拓展投资渠道将对改善其资产和负债错配大有帮助。与中国其他保险商一样，自1999年6月中国基准利率降至2.25%的低点以来，平安保险一直深受低利率之苦。
尽管政府在那之后将保单的分红比例限制在2.5%的范围，但平安有大约40%的保单的平均负债率仍高达4.3%，而业内的平均投资回报率在4.1%。并且，虽然保险公司可以买卖A股股票，但中国A股市场一直萎靡不振。
收益率2005年再度下滑，其中，7年期国债的收益率下降0.92个百分点至3.46%。据新鸿基金融集团(SHK Financial Group)推算，国债收益率每下降0.5个百分点，平安保险的收益率就降低5.3%。
中国监管机构希望确保保险公司能与瓜分中国市场的规模较小但更灵活的外资合资企业抗衡。平安保险目前占据中国17%的寿险市场。中国寿险市场规模超过人民币3,000亿元，在世界各国排名第八。平安保险的市场占有率远低于中国人寿，但较排在第三的太平洋保险（11%）也领先不少。在许多远东国家有著不俗业绩的美国国际集团(American International Group)在中国市场的占有率只有1.8%。
平安保险在寿险市场的份额曾一度高达30%，但为提高效率和盈利能力，该公司在7年时间里将销售人员从300,000人削减到200,000人，并对留下的人员重新进行了培训。现在，在利润率远高于其主要竞争对手的情况下，其市场占有率仍在逐渐恢复。此外，平安保险在财产及意外伤害险市场占9.5%的比例。
过去几年来，中国放松了对许多投资领域的限制。过去严禁从事证券投资的保险公司现在有了很大灵活度。现在，平安可将总资产的5%投资股票，15%投资股票基金，30%投资可转债。平安目前股票投资的实际比例是4%，而中国人寿和中国另一家大型保险公司中国人保(PICC Property & Casualty)的这个比例分别是5%和8%。
由现任董事长兼首席执行长马明哲1988牵头组建的平安保险现在正在全力应对重组业务的种种挑战。自从1999年以来，平安保险就开始大刀阔斧地进行重组，以解决收益率下滑的问题，它不惜以牺牲业务量增幅为代价，转向承保利润率更高的万能寿险保单。该公司定于3月30日公布2005年收益报告。摩根士丹利对其全年利润的预期是人民币42亿元，合每股0.68元；收入预期是653亿元。2004年平安保险的利润和收入额分别是31亿元和633亿元。
至于2006年，目前分析师们的普遍预期是每股收益0.87元。瑞士信贷第一波士顿(CSFB)预计平安保险未来三年的利润年增幅能达到25%，保费净收入年增幅将达到11%。
如今，平安保险第一年保费收入有50%以上来自定期保单，大大高于中国人寿的20%；中国人寿的60万保险经纪人重点推销利润较低的一次性缴付的保单。张子欣表示：销售定期长期保险品种的利润率能达到以往的10-20倍。
据汇丰控股(HSBC)旗下Global Research估计，事实上，平安保险新保单的利润率已从20%提升到30%以上（相比之下，中国人寿的利润率还不到15%），而且还有很大的提升盈利空间。张子欣估计目前每个保险经纪人每张保单的利润为人民币100元左右。这个数字至少还能提高一倍。
如今，平安保险是一个广受欢迎的保险品牌，客户群达到3,000万。虽然非寿险市场将紧随中国经济的增长步伐，而随著中国人口老龄化的加剧及富余程度的提高，寿险业务更具前景。平安保险估计中国家庭财富的年增幅为11%，到2010年估计将达到人民币92,600元的平均水平，大大高于2001年的32,500元。
为了迎接这一天的到来，平安保险董事长马明哲招募了很多外国人为平安保险改造系统、设计新战略。张子欣就是其中之一，这位前麦肯锡(McKinsey Consulting)合伙人2000年加入平安保险，之前麦肯锡为改进平安保险系统作过一项长期调研项目。
平安保险的一个重要目标就是进入银行和资产管理行业。中国人的储蓄规模达到国内生产总值的50%，个人最大的一项资产还是银行储蓄。
汇丰控股目前持有平安保险20%的股票（根据现有法律，外资持股比例不得超出25%），并正在帮助该公司改进风险管理和审计做法。这两家公司也有一家合资企业平安银行(Ping An Bank)。“平安保险的销售能力与汇丰的后台支持系统是非常完美的组合，”张子欣表示。（汇丰还持有中国第五大银行、上市公司交通银行(Bank of Communications)20%的股份。）
目前，平安保险正在和荷兰银行(ABN Amro, ABN)等财团一起竞购广东发展银行(Guangdong Development Bank)的股份。张子欣表示，平安保险正在寻找一些金额不大、具有增益性的交易。他还说，未来10年平安保险将三条腿走路。
一是寿险──包括涵盖某些重大疾病的保单，以及新的个人退休规划产品。
二是养老金专营业务，其中一个大类就是企业年金。目前，这些计划拥有140亿美元的资产，在这个市场平安保险的占有率为27%。“在亚洲，保险公司应成为最大的养老金管理公司，”张子欣表示，“中国人高达人民币15-20万亿元的储蓄将有20%-30%用于退休养老。潜力巨大，这里有几十万亿的资金。”
三是消费信贷，用张子欣的话就是“向许多人进行小笔借款”。“10年内我们3,000多万的客户群将扩大为1亿以上。在零售银行业，债务都是长期的，而资产都是短期的。在寿险领域，债务是短期的，而资产是长期的。这是非常完美的组合。”
需要提醒的是：汇丰首席保险业分析师约翰?鲁塞尔(John Russell)认为，随著平安保险拓展新业务，加上老保单的沉重负担（老保单产生的负债一直高于公司的投资回报），平安保险的资产负债规模可能会缩小。但张子欣表示，平安保险资金充足。此外，鲁塞尔指出，平安保险可以通过保单证券化释放出一些资金，就像英国保险公司那样，或是出售股票。
目前，平安保险的应对策略是资产多元化、争取新保单和控制成本。在平安保险，维持成本占续保保费收入的10%，低于中国人寿的14%左右。而且，逐步地，收益率将上升，中国（实际上，全亚洲都是）目前的低利率水平是不会一直持续下去的。
近来随著平安保险的股价突破券商们设定的目标价位，券商们开始对该股的大幅攀升感到担心。彭博资讯(Bloomberg)的数据显示，该股股价现为帐面价值的4倍，过去12个月收益数据的32倍，相比之下美国国际集团(American International Group)的这两个数据分别是1.9倍和18倍，大都会保险(MetLife)分别是1.3倍和12倍，安联保险(Allianz)是1.6倍和13.2倍。自从2004年IPO以来，平安保险股价的累积涨幅已达70%。
较高的估价将限制该股近期的涨幅。Dynasty Fund驻上海的经理David Zhang表示，这样的市盈率不太可能再有大幅上升。但他计划继续持有手中的平安保险股票，这些股票是他自2004年平安保险IPO时就持有的，因为他认为这些股票是良好的长期投资选择。
另一个推崇该股的是ABN Amro Financials基金驻阿姆斯特丹的经理帕特里克?雷蒙斯(Patrick Lemmens)。“平安保险的优势是他们在管理、会计、分销等方面处于领先。长期增长的价值在哪里？对于一些精选的、管理完善的国际人寿保险公司，值得支付相对高的价格。”
张子欣自然认同这一点。“我们有很好的品牌，超过3000万的客户群，有很大的改进空间，零售金融服务也有很大的增长空间，”他说，“较目前增长10倍并非天方夜谭。”
