Ping-An: We believe that the slowdown in premium growth in Mar was due to the regulatory changes
The other listed life insurers only reported monthly gross written premiums (GWP) (which is basically FYP plus renewal premiums). Again, it is clear that even for GWP growth, there was a marked slowdown in Mar yoy compared to Feb yoy, for China Life (Mar: -12% yoy vs. Feb’s +2% yoy), CPIC Life (Mar: -8% yoy vs. Feb’s +6% yoy) and NCI (Mar: +3% yoy vs. Feb’s +7% yoy)
We believe that the slowdown in premium growth in Mar was due to the regulatory changes relating to the repricing and the relaunching of new critical illness products at the start of Feb 2021. This led to a big sales push by agents to sell the old critical illness products before the regulatory changes came into effect.
The consequence of such a strong sales push is that customers may have decided to bring forward any purchases for critical illness products into Jan and to a lesser extent Feb (as even though the sales may have been completed at the end of Jan, the agent may only have booked into Ping-An’s systems in earlyFeb).
As a result of customers bringing forward their critical illness insurance purchases earlier in the year, Mar sales would thus be weaker, especially if customers had been told that the newer critical illness products are not as attractive as the older products. Another concern is that critical illness insurance tends to have higher NBV margins compared to other insurance products, especially savings-related insurance.
Thus, as a marked slowdown in sales of this high-margin product could have a disproportionate impact in terms of a slowdown in terms of NBV growth, as the mix of sales in Mar and possibly the next few months shifts towards a lower-margin product mix.
The key question that thus needs to be asked is how long could such a slowdown in critical illness sales last? We think that parallels can be drawn from the last time a major product type was withdrawn due to regulatory changes. Specifically, we think that the implementation of Document 134 back at the start of Oct 2017 may offer guidance as to the duration of the current slowdown of insurance sales.
Document 134 was announced in May 2017. It raised the minimum duration in which an annuity or endowment policy could mature and return a cash value to five years, and specified that the maximum cash value that a policy could return in a year could not exceed 20% of the premiums paid into that policy. It also banned the use of universal life insurance and investment linked insurance as a rider.
The regulation was to take effect from the start of Oct 2017. While such products were previously extremely popular among customers, they were also very low margin and short duration for the life insurer selling these products.
It is clear looking at the system gross written premium (GWP) growth trends around that time, that there was a big sales push leading up to the implementation of Doc 134 on 1 Oct 2017 (Fig 5). System GWP growth accelerated from 5% in Jun 2017 to 39% in Sep 2017, before slowing markedly to -5% yoy in Oct 2017. It only troughed four months later in Jan 2018 (-26% yoy), before gradually rebounding.
severity of a slowdown in sales as what was experienced following Doc 134’s introduction. Nevertheless, while we do not expect to see the same severity in terms of the percentage slowdown of growth, it is possible we could see a similar duration of the impact (i.e. up to four months).
An analysis of Ping An’s life insurance individual channel monthly first year premium (FYP) growth yoy indicates a somewhat similar duration in terms of a slowdown of sales (Fig 6), although we caution that this duration could have been adversely impacted by the start of Ping An’s life insurance reform programme, which began at the start of 2018
– By CIMB Bank Research