© Reuters. Soochow Securities: Insurance stocks may usher in a small short-term “Davis double-click” due to lower time deposit interest rates
Zhitong Finance APP learned that Soochow Securities released a research report stating that the core reason for the continued pressure on financial stock valuations is the market’s lack of confidence in medium- and long-term economic growth. As a procyclical product, financial stocks are obviously under pressure on their valuations. The industry is currently in a double superposition cycle of “vacuum” data on the liability side and “bottom shock” on the asset side. With time deposit interest rates lowered, insurance stocks may experience a small short-term “Davis Double Click.” We recommend China Pacific Insurance (601601.SH), China Life (601628.SH) and New China Insurance (601336.SH), and also actively recommend China Property & Casualty Insurance (02328), a weak cycle defense product.
event:On December 22, the listed interest rates of 1, 2, 3, and 5-year time deposits of major state-owned banks will be reduced by 10, 20, 25, and 25bp respectively. This is the third time that major state-owned banks have lowered their deposit interest rates this year. Brief analysis Impact on insurance.
The main views of Soochow Securities are as follows:
Why cut interest rates. The main reason is that the pressure on bank interest margins continues to be under pressure, which is not conducive to continuing to increase services to the real economy.It is worth noting that this downgrade selection was conducted before the bank’s “good start”, which will have a more obvious effect on reducing liability costs in 2024, and also opens up room for LPR reductions in early 2024. At the end of 3Q23, the net interest margin and weighted average interest rate of RMB loans of commercial banks were 1.725% (1.744%, 1.736% and 1.725% respectively in the first three quarters) and 4.14% respectively, setting new lows since then. Under the pressure of lower interest rates on existing mortgage loans and repricing of mortgage loans in early 2024, bank interest margins are under further downward pressure. At the same time, affected by insufficient effective demand this year, CPI and PPI have continued to be under pressure year-on-year, and the drag spiral of deflation on the economy has emerged. The bank believes that if the LPR continues to be reduced in the future (especially the 5-year LPR), it may open up the possibility of further reductions in the predetermined interest rates of personal insurance products with a term of more than one year in 2024.
Impact on insurance sales.This asymmetric interest rate cut is intended to promote the transfer of deposits from the household sector to consumption and investment. At the same time, judging from the magnitude of the reduction in time deposits, short-term deposits have been reduced by a small amount, and long-term deposits have been reduced by a large amount in order to guide enterprises and households to increase investment and consumption, which has strong economic implications. In recent years, affected by the expected decline in residents’ income, coupled with the continued macroeconomic downturn, financial management and fund sales have continued to be sluggish, and residents’ deposit activation has continued to decline. In December 2023, major state-owned banks once again ushered in the third deposit interest rate cut during the year. The pricing interest rate of 3.0% is still very attractive. In the low interest rate environment, the advantage of insurance capital preservation is still outstanding. The bank expects that the adjustment in time deposit interest rates will greatly boost savings-type businesses such as annuities and extended whole life insurance.
Prospects for a good start: Strictly implement the “no significant advance” advance payment of premiums, and all insurance companies will pay close attention to product promotion work, and advance the pre-recording of intentions for a “good start”.In mid-October, the State Administration of Financial Supervision issued the “Notice on Strengthening Management to Promote the Stable and Healthy Development of Personal Insurance Business” to all personal insurance companies, pointing out that underwriting management must be standardized and measures such as collecting premiums in advance and specifying the effective date of the policy in the second year shall not be adopted. To carry out underwriting in a certain manner, customers’ funds that are actually premiums must not be deposited in other investment and financial management accounts to prevent underwriting gaps. The main factor that currently troubles grassroots teams to get off to a good start is the size of the team. The 3Q23 banking and insurance industry data information press conference proposed that the “unification of reporting and banking” work for personal agency channels and brokerage agency channels will be launched promptly.
The bank believes that the regulatory ideas are consistent, and the core purpose is still to reduce the industry’s medium and long-term debt costs. Leading companies are expected to benefit from the improvement of the competitive environment in the long term. All insurance companies strictly follow the “not to collect premiums in advance significantly” to carry out the “good start” premium intention pre-recording work. Due to the inability to collect insurance cash in advance, the first daily new orders and value may face certain pressure. Taking into account the dislocation effect of the Spring Festival in 2024, it is expected that in 1Q24 The overall value growth rate remained stable.
risk warning:“Good start” policy sales fell short of expectations, the expected decline in residents’ income dragged down new sales, and the macro economy continued to be sluggish.
2023-12-23 08:07:00
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