China insurer valuations surpass banks

Growth expectations fuelled by country’s low rate of insurance penetration

While investors shun Chinese bank stocks over fears of exposure to rising bad debt and a slowing economy, insurance has emerged as a bright spot in the financial sector, with an emerging middle class expected to-buy more cover.

China’s eight Hong Konglisted insurers were valued at a median 10.7 times estimated 12-month forward earnings in early December, compared with 5 times for banks and 8.5 times for securities brokers, according to Thomson Reuters data.

Growth expectations are being fuelled by China’s low rate of insurance penetration, giving providers room to catch up. Premiums were only 3 per cent of Chinese gross domestic product of a wave of outbound investment. Cushman and Wakefield expects Chinese insurers to buy $73 billion in foreign real estate by 2019 on top of $13 billion invested already.

Listed insurers including China Life and Ping An fell shy of earnings forecasts in the third quarter in part due to investment losses from the stock market rout. The market has since recovered, which will boost fourth-quarter results.

Beyond investment risk, the main challenge facing insurers is a lack of consumer awareness. “The Chinese consumer severely distrusts anyone trying to sell them insurance,” says Sam Radwan,-par trillioner at Enhance, a consultancy focused on China’s insurance industry.

“What the insurance industry is growing into is different from what we see today. You know more or less what the Chinese banking industry will be in the next five years. The insurance industry is still shaping itself,” says Radwan.