Asia Insurance sectorpg.jrj.com.cn/acc/Res/CN_RES/INDUS/2013/7/8/cd304c... · 7/8/2013 · China and Korea would account for 80% of Asia’s total non-life premium growth. So far

PREPARED BY BNP PARIBAS SECURITIES ASIA THIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. IM

SECTOR REPORT

EQUITIES RESEARCH

ASIA EX JAPAN

ASIA INSURANCE SECTOR

IMPROVING INDUSTRY OUTLOOK

Rate sensitive basket

SUMMARY We launch our Asian insurance rate sensitive basket for 2H13

The five stocks within our Asian insurance interest rate sensitive basket

(AIA, China Life (CN), Fubon FHC, Hanwha and Bangkok Life)

most sensitive to the rising interest rate cycle theme as the US Fed starts

to taper off QE. Our 1H13 strategy of avoiding negative spre

23% index outperformance ytd.

OUTLOOK Our basket selection is based on our rate sensitivity analysis

Despite various approaches to EV sensitivity reporting, we attempt to

create a comparable interest rate sensitivity analysis across the Asia

insurance sector to identify the most EV and VONB sensitive players

within our rate sensitive basket. UST 10Y yield is already up 41% ytd,

while HK and Singapore sovereign 10Y yields are up 234% and 87%

VALUATION We select the highest rate sensitivity insurer in each geography

A rising interest rate scenario results in a combination of factors that

impact EV and VONB differently, including higher investment returns,

higher RDR, lower statutory liability and lower market value of assets

rate sensitivity analysis shows that Taiwan insurers have the highest EV

and VONB sensitivity to rising interest rates across the region, with Fubon

FHC being the highest. For every 100bp rise in investment yield, Fubon

FHC’s EV would rise by 68%, and its VONB by 67%. High sensitivity reflects

a product mix weighted towards long-term saving products with fairly

high guarantee rates. Although Korea life insurers also have large blocks

of negative spread policy, their rate sensitivity is not as high, given their

stronger solvency margins, higher proportion of protection and payout

annuities. Hanwha Life, however, has the highest sensitivity among Korea

life insurers. In China, China Life has greater interest rate sensitivity than

Ping An, given Ping An’s protection policy focus. In ASEAN, Bangkok Life

(BLA TB, NR) has much higher rate sensitivity than Great Eastern

NR), reflecting its bancassurance focus, at 62% of its total premium

income in 2012. EV sensitivity for AIA and Pru (PRU LN

comparable given their comprehensive approach. AIA’s 18% VONB CAGR

outlook should continue to differentiate it from Asia peers where we

forecast a 5-10% VONB CAGR over 2012-15.

Dominic Chan, CFA [email protected]

+852 2825 1175

Ling [email protected]

+852 2825 1135

BNP Paribas Securities (Asia) Ltd. research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on your salesperson for authorisation. Please see the important notice on the back page.

IMPORTANT DISCLOSURES CAN BE FOUND IN THE DISCLOSURES APPEND

BNPP RECOMMENDATIONS

Company BBG Code Rating

AIA 1299 HK China Life 2628 HK

Ping An Insurance 2318 HK

CPIC 2601 HK

NCI 1336 HK

Samsung Life 032830 KS

Hanwha Life 088350 KS

Samsung F&M 000810 KS

Fubon FHC 2881 TT

Cathay FHC 2882 TT HOLD

sensitive basket for 2H13

We launch our Asian insurance rate sensitive basket for 2H13

interest rate sensitive basket

(AIA, China Life (CN), Fubon FHC, Hanwha and Bangkok Life) screen as

the rising interest rate cycle theme as the US Fed starts

to taper off QE. Our 1H13 strategy of avoiding negative spread has seen

Our basket selection is based on our rate sensitivity analysis

Despite various approaches to EV sensitivity reporting, we attempt to

create a comparable interest rate sensitivity analysis across the Asia

sector to identify the most EV and VONB sensitive players

is already up 41% ytd,

while HK and Singapore sovereign 10Y yields are up 234% and 87%.

We select the highest rate sensitivity insurer in each geography

rising interest rate scenario results in a combination of factors that

and VONB differently, including higher investment returns,

higher RDR, lower statutory liability and lower market value of assets. Our

rate sensitivity analysis shows that Taiwan insurers have the highest EV

ross the region, with Fubon

FHC being the highest. For every 100bp rise in investment yield, Fubon

FHC’s EV would rise by 68%, and its VONB by 67%. High sensitivity reflects

term saving products with fairly

e rates. Although Korea life insurers also have large blocks

of negative spread policy, their rate sensitivity is not as high, given their

protection and payout

t sensitivity among Korea

life insurers. In China, China Life has greater interest rate sensitivity than

policy focus. In ASEAN, Bangkok Life

has much higher rate sensitivity than Great Eastern (GE SP,

reflecting its bancassurance focus, at 62% of its total premium

(PRU LN, NR) is more

comparable given their comprehensive approach. AIA’s 18% VONB CAGR

outlook should continue to differentiate it from Asia peers where we

Ling Tang [email protected]

+852 2825 1135

Frank Yuen, CFA [email protected]

+852 2825 1863

Dave Ko [email protected]

+822 2125 0506

BNP Paribas Securities (Asia) Ltd. research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on http://eqresearch.bnpparibas.com/indexfor authorisation. Please see the important notice on the back page.

TOP STOCK PICK

Company

BBG Code

Share Price

Target Price

1 Year - high

1 year - low

ASIA INSURANCE BASKE

Company Stock code

AIA 1299 HK Equity

Hanwha Life 088350 KS Equity

China Life 2628 HK Equity

Fubon FHC 2881 TT Equity

Bangkok Life BLA TB Equity

Source: BNP Paribas

22

24

26

28

30

32

34

36

38

40

Jun-12 Sep-12

(HKD) AIA

NDIX

Rating Share Price

Target Price

Upside / Downside

BUY 33.25 43.34 +30.3% BUY 17.96 26.00 +44.8%

BUY 49.95 80.00 +60.2%

BUY 24.30 33.00 +35.8%

BUY 23.05 33.00 +43.2%

BUY 105,500 128,000 +21.3%

BUY 6,690 8,900 +33.0%

BUY 243,500 260,000 +6.8%

BUY 37.70 47.50 +26.0%

HOLD 40.20 40.00 -0.5%

[email protected]

Leif Chang [email protected]

+886 2 8729 7057

http://eqresearch.bnpparibas.com/index. Please contact

8 JULY 2013

PICK

AIA

1299 HK

33.25

43.34

36.45

26.10

ASIA INSURANCE BASKET

Stock code FY13E P/EV

1299 HK Equity 1.51

088350 KS Equity 0.82

2628 HK Equity 1.05

2881 TT Equity 1.39

BLA TB Equity 2.70

(9)

(4)

1

6

11

16

21

26

Dec-12 Mar-13 Jun-13

(%)Rel to Hang Seng Index

http://equities.bnpparibas.com/

Asia Insurance sector Dominic Chan, CFA

2 BNP PARIBAS 8 JULY 2013

Rising interest rates outlook for 2H13

In our Asia insurance sector note, Avoid negative spread in 2013, published on 7 January 2013, we projected 11% premium growth for life and non-life for 2013, driven by stronger GDP growth. For life, we expect the export-oriented Asian economies, including China, to represent 89% of total Asia life premium growth, while China and Korea would account for 80% of Asia’s total non-life premium growth. So far our predictions are on track, as both China and Korea have shown about 6% life premium growth up to May 2013. Non-life has been doing better than expected, with already mid-teen premium growth up to May 2013.

Also, we highlighted in January that a key risk to Asia insurers remains the protracted low interest rate environment, dampening investment yield. We identified Korea and Taiwan as the riskier areas given their much higher guarantee rate life policies. Indeed, both Samsung Life and Samsung Fire & Marine’s investment yields were below our forecasts by 10-37bp for FY13 (March year end; note FY13E is FY14E throughout the report for these stocks). Also, in Taiwan, we estimate that the full-year pre-hedging recurring yield for Cathy Life will be 3.4% (just 3.1% for 1Q13), below the 3.6% seen in past two years. Thus, in January we picked AIA, Samsung F&M and China Life (TW) as our top picks among Asia insurers, given that they have the least negative spread issues. Our top picks have outperformed our Asia Insurance Index by 23% ytd, with China insurers being the major drag (Exhibit 1).

EXHIBIT 1: Asia Insurance relative share price performance

Source: Bloomberg

US Fed tapering off QE, and Asia bond and equity performance

We believe that one of the key topics for the Asia insurance sector in 2H13 should be expectations of rising interest rate cycles, given the improving US job and housing markets ytd. In fact, the US Fed has recently stated that it would trim its bond purchases programme later in 2013 and halt the programme by mid-2014, if the economy progresses as it expects.

EXHIBIT 2: UST 10Y yield movement trend EXHIBIT 3: Sovereign bond yield (10Y) trend

Source: Bloomberg

Source: Bloomberg

75

85

95

105

115

125

Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13

Asia Insurance Index AIA Samsung F&M China Life TW

0

1

2

3

4

5

6

7

8

9

10

Dec 90

Oct 91

Aug 92

Jun 93

Apr 94

Feb 95

Dec 95

Oct 96

Aug 97

Jun 98

Apr 99

Feb 00

Dec 00

Oct 01

Aug 02

Jun 03

Apr 04

Feb 05

Dec 05

Oct 06

Aug 07

Jun 08

Apr 09

Feb 10

Dec 10

Oct 11

Aug 12

Jun 13

(%)USGG10YR index Average

(60%) (40%) (20%) 0% 20% 40% 60% 80%

Thailand

Malaysia

China

Taiwan

Philippines

Korea

Indonesia

Australia

Singapore

US

Hong Kong

2Q13 Chng q-q 1Q13 Chng q-q 2012 Chng y-y



US unemployment is expected by the Fed to fall to 7.5% in the short term, given the 155,800 increase in non-farm payrolls momentum (monthly average) over Mar-May 2013. Construction employment will likely add to May’s gains as the housing recovery pushes ahead. Clearly, the bond market has started to react to the US Fed’s potential tapering off its bond purchases in 1H13, with the UST 10Y yield rebounded strongly by 41% or 71bp ytd to 2.47%. About half of the yield gain ytd has happened since end of May 2013, not long before the US Fed gave a clearer direction on its tapering off of QE (Exhibit 2). The UK Gilt 10Y yield has also risen strongly, by 30% or 55bp ytd to 2.37%.

In Asia, Hong Kong and Singapore government bond yields (10Y) have advanced the most; up 234% and 87% respectively, followed by Indonesia’s 40% and Taiwan’s 24% increase ytd (Exhibit 3). China and Philippines government bond yields have remained flat to down 4% ytd, respectively, while the sovereign bond yields of Malaysia, Thailand and Korea have advanced only 4-8%.

Asia’s negative interest spread policy revisited

Interest rate risk arises if the duration of an insurer’s assets and liabilities is not properly matched, which is usually the case In Asia. Insurers that have backed their long-term insurance liabilities with short duration assets have to reinvest a portion of their assets at a lower yield if interest rates decline and stay low. Life insurer liabilities often last 30 years or more, and in many markets assets with such a long duration are neither available nor liquid, thereby making proper ALM challenging.

Rising interest rates usually result in lower policy pricing, higher demand for insurance products, higher investment income and a rise in the economic value of insurance companies under the embedded value (EV) concept. However, investment income would not be as important for the profitability of property insurers (short-tail business) as it would be for long-tail non-life and life insurers, as the time between the payment of premiums and claims is short.

EXHIBIT 4: Asia insurance coverage universe – negative spread policy analysis

Life insurers

Recurrent investment yield

2013E

Total investment yield

2013E (P&L)

Average insurance liability cost

2013E

Insurance policy (with high

guarantee) mix

Average guarantee rate for insurance policy

(with guarantee)

Insurance policy (without high

guarantee) mix

Total inv. yield vs avg liability

cost

(%) (%) (%) (%) (%) (%) (%)

Regional

AIA 4.30 4.60 3.62 6 5.50 94 0.98

Korea

Samsung Life na 4.18 5.50 54 6.84 46 (1.32)

Hanwha Life na 5.37 5.73 64 6.75 36 (0.36)

Tong Yang Life na 4.47 5.20 45 TBC 55 (0.73)

Average life 5.48 54 6.79 46 (0.80)

Samsung F&M na 4.51 4.22 18 5.85 82 0.29

Dongbu Ins na 4.88 4.20 18 4.46 82 0.68

Hyundai M&F na 4.56 4.18 14 6.09 86 0.38

LIG Ins na 4.52 4.12 8 4.60 92 0.40

Meritz F&M na 5.25 3.94 9 5.14 91 1.31

Average non-life 4.13 13 5.23 87 0.61

Taiwan

Cathy FHC n.a. 4.60 4.61 62 6.0 38 (0.01)

Fubon FHC n.a. 3.50 4.06 30 6.0 70 (0.56)

China Life n.a. 3.80 3.72 38 6.0 62 0.08

Average 4.13 43 6.0 57 (0.16)

China

China Life 4.40 3.60 3.84 0.0 <2.5 100 (0.24)

Ping An 4.00 4.00 4.31 20.8 6.1 79 (0.31)

China Pacific 4.50 3.90 4.53 11.0 6.4 89 (0.63)

NCL 4.90 4.40 5.10 2.1 6.5 na (0.70)

Sources: Company; BNP Paribas estimates



As regards total investment yield for 2013E (including recurrent bond coupon rates plus trading equity and debt gain/loss), while rising long-term bond yields are favourable for re-pricing debt securities on a medium to long-term basis (as the back book debt securities mature), the recent tapering off of QE by the US Fed, as well as a slowing China and India economic outlook, has increased equity market volatility, especially in Hong Kong/China and Korea, which have seen 8-11% declines ytd in equity market indices. ASEAN stock markets have been holding up well with a 4-11% gain ytd.

As a result, the total investment yield for our Asia insurance coverage has been lowered for 2013E (Exhibit 4). In addition, average insurance liability costs are reduced given lower policyholder dividends as insurers share lower investment gains with policyholders. Given the high fixed rate guarantee nature for many Asia life insurers such as Korea and Taiwan, the negative spread situation still persists for most Korea and Taiwan life insurers in 2013E, while insurers with positive asset liability spreads are seeing some contraction given lower equity gains for 2013E.

EV and VONB sensitivity methodology

Having said that, higher interest rates are good for life insurance companies, given positive asset and liability repricing gaps. As UST 10Y and 30Y bond yields continue to rise, we believe that the market will be increasingly looking for insurers whose embedded value (EV) and value of new business (VONB) would be most sensitive to rising interest rates. In Europe, life insurers apply consistent European market methods in calculating EV and VONB, while Asia life insurers use a traditional deterministic discounted cash flow methodology. The latter relies on a set of long-term actuarial assumptions, including long-term investment return, mortality and morbidity rates, persistency rates and expenses ratio.

Thus, Asia insurers might not need to adjust their long-term assumptions closer to the actual experience as frequently as their European counterparts. Despite this, the Asia insurers’ disclosure on EV sensitivity still provides the best indication of their EV and VONB sensitivity to rising interest rates.

Although various forms of EV and VONB sensitivity disclosure are provided by Asia insurers, life insurers use different methods in deriving their EV and VONB sensitivity. We have come across a more comprehensive method, used by AIA, where both long-term investment return and risk discount rates (RDR) are increased according to interest rate sensitivity. A rising interest rate scenario would result in a combination of several factors impacting EV and VONB differently. These factors include higher investment returns, higher RDR, lower statutory liability, and lower market value of assets (Exhibit 5).

EXHIBIT 5: Effect of rising interest rate on EV and VONB

ANW (a) VIF (b) EV (a+b) VONB

Higher investment returns

+ + +

Higher RDR

- - -

Lower Statutory liability + - + +

Lower market value of assets -

-

Source: BNP Paribas

Both EV and VONB would rise after a simultaneous lift in investment return and RDR, as well as lower statutory liability, in a rising interest rate scenario (Exhibit 5). The sensitivity of VONB is usually higher than EV, as marking to market of asset values would affect only adjusted net worth (ANW), which is a key part of EV. Given asset and liability duration mismatches, negative implications for ANW from lower market values of asset would be more than offset by lower statutory liability.

Rising investment returns should have a positive impact on value of in-force (VIF) and VONB on higher investment income, while higher RDR would negatively impact VIF and VONB as the present value of VIF and VONB cashflows would be adjusted lower (Exhibit 5).

Perhaps the more difficult part would be the effect of lower statutory liability on ANW, VIF and VONB. On the inforce block, the effect of a higher interest rate is an immediate release of reserve into surplus (ie positive for ANW on lower reserves). On the reserve itself, future decreases in reserve would be lower (ie negative for VIF as running off a lower reserve). Overall, the result should be a lower value of future profit but the effect should be smaller than the immediate release of reserve, so that the total net worth would be higher under a higher interest rate scenario (Exhibit 5).

In short, on the one hand, profits are released earlier; on the other, reinvestment rates are also higher, so cumulative values at the end would also be larger. On VONB, there would be less new business strain for VONB because of having to set up a lower reserve; this would more than offset lower future cashflows for VONB from the run off of lower reserves (Exhibit 5).



Asia insurance interest rate sensitivity analysis

In our EV and VONB sensitivity analysis for Asia insurance, we focus on the impact on EV from a 100bp rise in interest rates and 10% rise in equity prices, as well as from a 100bp rise in overall investment yield. Only AIA and Pru use a more comprehensive interest rate sensitivity method, marking to market assets and liabilities as well as changes of RDR. Many Asia peers don’t take RDR and reserves into account. Thus, to make our regional interest rate sensitivity more comparable, we organise our analysis such that only higher investment return is taken into account. We attempted to take out the RDR factor from the interest rate sensitivity that is reported for both AIA and Pru, given the available RDR sensitivity information. But, the impact of marking to market asset values would remain in the interest rate sensitivity. This explains why AIA and Pru have lower EV and VONB sensitivity than other Asian peers, as for them, EV would change by only 4-7% for every 100bp rise in investment yield (Exhibit 6).

EXHIBIT 6: Asia insurance – interest rate and equity price sensitivity to EV and VONB, based on published data

ANW VIF EV (base) EV (after

100bp rise in interest rates)

EV Change

EV (after 10% rise in

equity price)

EV Change

EV (after 100bps rise in

investment yield)

EV Change

VONB (Base)

VONB after 100bp rate

hike

VONB change

Duration (years)

(LC m) (LC m) (LC m) (LC m) (%) (LC m) (%) (LC m) (%) (LC m) (LC m) (%) (LC m)

Regional

AIA 13,170 18,238 31,408 33,681 7% 31,961 2% 32,738 4% 1,188 1,512 27% 7.7

China

China Life 128,507 209,088 337,596 na na na na 405,677 20% 20,834 26,188 26% 4.4

Ping An 165,386 120,488 285,874 na na na na 316,256 11% 15,915 18,007 13% na

China Pacific 86,237 49,043 135,280 na na na na 156,756 16% 7,060 8,560 21% 4.3

New CL 25,458 31,412 56,870 na na na na 67,950 19% 4,172 5,536 33% 4.3

PICC Group 63,464 17,676 81,141 na na na na 89,579 10% 4,769 6,953 46% 4.3

Taiwan

Cathy FHC 242 323 565 na na na na 873 55% 50 66 32% 4.6

Fubon FHC 101 117 218 na na na na 367 68% 32 53 67% na

China Life TW 54 41 95 na na na na 153 62% 12 na na na

Korea

Samsung Life 22,308 2,555 24,863 26,843 8% na na na na 1,148 1,230 7% na

Hanwha Life 7,965 281 8,246 9,262 12% na na na na 557 675 21% na

Tong Yang Life 1,540 439 1,980 2,097 6% na na na na 116 155 34% na

Samsung F&M 8,639 4,245 12,884 13,840 7% na na na na 935 1,047 12% na

Dongbu Insur 2,649 2,268 4,917 5,499 12% na na na na 413 479 16% na

Hyundai M&F 1,987 2,262 4,250 4,760 12% na na na na 397 470 18% na

LIG Ins 1,491 1,740 3,231 3,592 11% na na na na 344 403 17% na

Meritz F&M 997 1,494 2,490 2,853 15% na na na na 377 430 14% na

Thailand

Bangkok Life 11,457 19,154 30,610 na na na na 39,514 29% 1,910 2,838 49% 4.6

Singapore

Great Eastern 4,194 4,411 8,605 na na na na 9,207 7% 353 383 8% 4.2

UK

Prudential 7,032 15,411 22,443 23,343 4% 22,980 2% 23,081 3% 2,452 2,836 16% na

Sources: Company, BNP Paribas Note: We linearly scale all scenario analysis to a standardised change (100bp/10%) of the factor for the purpose of comparison

Stripping out AIA and Pru, our interest rate sensitivity analysis shows that Taiwan insurers have the highest EV and VONB sensitivity to rising interest rate across the region, with Fubon FHC being the highest. For every 100bp rise in investment yield, Fubon FHC’s EV would rise by 68%, and its VONB rise by 67% (Exhibit 6). We believe that this high interest rate sensitivity is because of its product mix tilt towards long-term saving products with fairly high guarantee rates. We estimate that about 43% of the key Taiwan insurers have paid high guarantee rates at about 6%. In addition, Fubon FHC would have the highest negative interest spread of about 56bp (Exhibit 4).



On the other hand, although Korean life insurers have also had large inforce blocks of negative spread policy, which we estimate to be 54% of their total inforce policies, offering about 6.5-6.8%, their EV sensitivity shows only 6-18% change in EV for every 100bp increase in interest rates. We believe that the lower sensitivity is due to its stronger capital position, with a solvency margin above 300% on average for the key life insurers. Also, this reflects lower interest rate sensitive in force book for the rest of their non-high guarantee policies, such as protection policies and payout annuities. The magnitude of the decline in 10-year government bond yields in Taiwan (down 63% from 2001 to now) has been much greater than that of Korea (down 46% over the same period), leading to a sharper increase in the value of guarantees for Taiwan than Korea (Exhibits 7-8). However, among the key Korea life insurers, Hanwha Life has relatively high interest rate sensitivity. For every 100bp rise in interest rates, its EV would increase by 12% and VONB by 21% (Exhibit 6).

EXHIBIT 7: Taiwan 10Y Sovereign bond yield trend EXHIBIT 8: Korea 10Y Sovereign bond yield trend

Source: Bloomberg

Source: Bloomberg

In China, China Life has the highest EV sensitivity to interest rates, as its EV would increase by 20% for every 100bp rise in investment yield, higher than Ping An’s 11%. Despite Ping An’s higher legacy guarantee policies (or 21% of its entire insurance liabilities), we believe that the lower interest rate sensitivity for Ping An is due to the ANW dilution from its other businesses, such as banking, P&C and brokerage. Its VIF accounts for only 73% of ANW, much lower than China Life’s 163% (Exhibit 6).

Also, Ping An sells more protection polices through its tied agents, compared with China Life’s focus on bancassurance channels. China Life has been selling more interest rate sensitive savings products, such as three- to five-year endowment policies with a maximum 2.5% guarantee rate (though this cap has recently been raised to 3.5%), than Ping An. China Pacific has less EV and VONB sensitivity than China Life, given its greater emphasis on protection policies through its tied agency distribution (Exhibit 6). Another interesting finding is that New China Life and PICC Group have relatively high VONB sensitivity, because they have recently been selling more long-term savings-related policies through bancassurance channels, coupled with their recent H-share IPOs.

EXHIBIT 9: Bangkok Life premium by distribution channels (2012) EXHIBIT 10: Great Eastern insurance liability by products (2012)

Source: TLAA

Source: Great Eastern

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Jun 01 Jun 03 Jun 05 Jun 07 Jun 09 Jun 11 Jun 13

(%) GVTW10YR index Average AIA Assumption

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Jun 01 Jun 03 Jun 05 Jun 07 Jun 09 Jun 11 Jun 13

(%)GVSK10YR index Average AIA Assumption

Agency34.7%

Banc62.2%

DM0.2%

Other2.8%

Whole Life56.7%

Endownment35.9%

Term0.9%

Accident and health

2.6%

Annuity1.6%

Others2.3%



Bangkok Life has much higher interest rate sensitivity than Great Eastern, reflecting Bangkok Life’s bancassurance focus, which accounts for 62% of its total premium income (Exhibit 9). Great Eastern, on the other hand, runs 20,000 tied agents in Singapore and Malaysia, focusing more on long-term whole life protection policies, with endowment plans accounting for 36% of its total insurance liabilities (Exhibit 10). OCBC’s strategic involvement in Great Eastern started in 2004.

Based on the available sensitivity disclosure, the EV sensitivity for AIA and Pru is not comparable to others in our analysis. Their lower than peers EV sensitivity is due to marking to market of asset value, which we do not adjust for in our analysis. However, the EV sensitivity for AIA and Pru is more comparable with each other, as both would take the hit from marking to market losses of asset value.

Of the two, AIA has higher EV and VONB sensitivity to rising interest rates, in particular on the VONB part. For every 100bp rise in interest rate, AIA’s VONB would rise by 27%, compared with 16% for Pru (Exhibit 6). We would assume the difference is mainly due to the geographic mix, as 13% of Pru’s VONB is from the UK and 35% from the US (Exhibit 11). According to Pru, the UK business is increasingly focusing on non interest rate sensitive products, such as unit-linked, protection products and payout annuities. In the US, the regulator has recently lowered the minimum interest rate guarantee to 2% from 4% for universal life and to 1% from 3% for deferred fixed annuities.

EXHIBIT 11: AIA vs Prudential key performance metrics comp EXHIBIT 12: Asia Insurance P/EV vs VONB growth 2013E metrics

AIA Prudential Prudential Asia

VONB growth (y-y %)

2011 40 6 19

2012 27 14 18

1Q13 25 5 18

ANP growth (y-y %)

2011 22 6 11

2012 9 14 14

1Q13 37 8 12

VONB Margin (%)

2011 37 44 49

2012 44 44 50

1Q13 38 41 47

VONB by geography (2012) (%)

Asia 100 52 100

UK 0 13 0

US 0 35 0

Source: Companies

Note: All companies are covered by BNPP except Bangkok Life, Prudential and Great Eastern Sources: Bloomberg consensus data; BNP Paribas estimates

AIA will report 1H13 results on 26 July. We expect 20% VONB growth y-y to USD331m for 2Q13, driven by a 60bp rise in VONB margin and 18% ANP growth. Thailand’s corporate tax rate will be set at 20% from 2015, which offers VONB margin upside potential.

While AIA’s EV would be slightly affected by lower than expected positive investment return variance in 2013E, we believe AIA’s VONB would remain solid, as reflected in its 1Q13 VONB, up 25.1% y-y to USD286m or 8% above our forecast (Exhibit 13). This beat even the highest end of the market’s expected growth range of 15-22%. Such strong VONB growth was driven by 37% y-y ANP growth, offsetting a 3.7pp y-y drop in VONB margin to 38.4% (Exhibit 14).

We believe AIA continues to perform well in its major markets, ie HK, Thai and Singapore, and has seen a strong improvement in Korean agency operations. Also, its Other Markets (ie Philippines, Indonesia and Australia) continue their rapid new business growth, while Malaysia has benefited from its ING acquisition in December 2012. Lower VONB margins but strong ANP growth in 1Q13 reflects strong performances in Other Markets, Malaysia and Korea, where VONB margins are lower than in other parts of the group.

Given stronger than expected VONB in 1Q13, we recently raised our VONB forecast by 1-3% for 2013-15, as we raised our ANP forecast by 1-4%, while lowering our VONB margin by a slight 0.1-0.5pp (VONB offsets market volatility, 25 June 2013). Thus, after an impressive 30% VONB CAGR (2009-12), we expect an 18% VONB CAGR (2012-15), mostly driven by our estimated 16% ANP CAGR (2012-15), with VONB margin at 43.3-45.1% range (Exhibit 14). We expect Other Markets’ and Malaysia to be the biggest VONB drivers by geography for 2013, and Other Markets, Thailand and Hong Kong to be the top three VONB growth contributors in 2014.

AIA

Samsung Life

Hanwha Life

LIG

Dongbu

China Life

Ping An

CPIC

NCL

Cathay FHC

Great Easter n

Bangkok Life

Prudential Fubon FHC

0

0.50

1.00

1.50

2.00

2.50

3.00

(5.0) 0.0 5.0 10.0 15.0 20.0 25.0

P/EV (x)

VONB (y-y %)

China Life TWHyundai M&F

Samsung F&M



EXHIBIT 13: AIA VONB and ANP trend (quarterly) (USDm) EXHIBIT 14: AIA VONB margin (quarterly) (%)



AIA remains well positioned in the fast growing and yet underinsured Asia Pacific region, with significant market franchises in most of its geographic footprints. Strong 2Q13 ANP growth would reaffirm our view that ANP will continue to be the biggest driver of VONB growth in the coming three years, and it would continue to differentiate AIA from other major listed life insurers in Asia under our coverage with only 5-10% VONB CAGRs (2012-2015) (Exhibit 15).

With 33% share price upside, we reiterate our BUY rating on AIA with our 23.3x target INBM. We have both AIA and Bangkok Life in our Asia insurance interest rate sensitive basket (Exhibit 16), which highlights which Asian insurers are most sensitive to rising interest rates in 2H13, based on company data, as the US Fed proceeds with tapering off QE from 2H13, before halting it altogether from mid-2014.

EXHIBIT 15: Asia Insurance – Key actuarial performance metrics

Life insurers ----------- VONB growth ---------- EV growth Combined ratio TP CP Stock Solvency

2013E 2014E 2013E 2013E Rec margin

(%) (%) (%) (%) (LC) (LC) (%)

Regional

AIA 20.6 16.1 8 na 43.34 32.5 BUY 353

Korea

Samsung Life 4.0 4.0 5 n.a. 128,000 107,500 BUY 408

Hanwha Life 3.7 4.8 6 n.a. 8,900 6,620 BUY 214

Tong Yang Life 2.9 2.8 10 n.a. 11,900 9,750 HOLD 300

Samsung F&M 10.0 12.0 11 101 260,000 245,000 BUY 439

Dongbu Ins 9.9 11.1 9 101 56,000 47,550 BUY 255

Hyundai M&F 10.0 9.5 12 101 36,000 31,050 HOLD 207

LIG Ins (0.1) (3.5) 4 102 27,300 23,150 HOLD 177

Meritz F&M (2.3) (2.9) 13 103 13,000 12,900 HOLD 183

Taiwan

Cathy FHC (3) 5 6 n.a. 40.0 39.8 HOLD 250-300

Fubon FHC 5 5 20 n.a. 47.5 37.2 BUY 200-300

China Life 10 5 14 n.a. 36.0 27.9 BUY >300

China

China Life 3.2 3.1 15 n.a. 26 17.6 BUY 236

Ping An 3.8 6.5 16 98 80 49.6 BUY 186

China Pacific 4.4 4.6 10 99 33 24.2 BUY 312

NCL 0.3 2.2 14 n.a. 33 22.7 BUY 193

Prices as of 4 July 2013 Source: Company data; BNP Paribas estimates

0

100

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EXHIBIT 16: Asia insurance rate sensitive basket

Stock

Ticker Rec Current

Price Target Price Upside

EV sensitivity to interest rate

VONB sensitivity to interest rate

(LC) (LC) (%) (%) (%)

1 Fubon FHC 2881 TT BUY 37.2 47.5 28 68 67

2 China Life 2628 HK BUY 17.6 26 48 20 26

3 Bangkok Life BLA TB NR na na na 29 49

4 Hanwha Life 088350 KS BUY 6620 8900 34 12 21

5 AIA 1299 HK BUY 32.5 43.34 33 4 27

Prices as of 4 July 2013 Source: Company data; BNP Paribas

EXHIBIT 17: AIA P/EV band chart EXHIBIT 18: China Life P/EV band chart

Sources: Bloomberg; BNP Paribas


EXHIBIT 19: Fubon FHC P/EV band chart EXHIBIT 20: Hanwha Life P/EV band chart



1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13

(x)

Mean

+1 S.D

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-2 S.D

+1 STDEV

-1 STDEV

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Median P/EVPS: 2.3x

+1 STDEV

-1 STDEV

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(x)

Median P/EVPS: 1.8x

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Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13

0.6x

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0.7x

(Wtrn)



Financial statements AIA

Profit and Loss (USD m) Year Ending Nov 2011A 2012A 2013E 2014E 2015E

Gross premium and fee 12,935 13,816 15,439 17,355 19,518

Reinsurance (634) (762) (605) (874) (1,159)

Net premium earned 12,301 13,054 14,834 16,481 18,359

Claims and benefits (9,072) (13,374) (13,832) (15,700) (17,589)

Policy acquisition cost (1,649) (1,641) (1,897) (2,136) (2,417)

Securities trading income 0 0 0 0 0

G&A cost (1,265) (1,359) (1,586) (1,781) (2,001)

Other income 0 0 0 0 0

Other provisions 0 0 0 0 0

Underwriting profit 315 (3,320) (2,481) (3,136) (3,648)

Interest and dividend income 0 0 0 0 0

Capital gains/(losses) 1,777 6,971 5,404 7,239 8,242

Dividend and interest to policyholders 0 0 0 0 0

Net investment income 1,777 6,971 5,404 7,239 8,242

Other income 114 127 140 154 169

Other operating costs 0 0 0 0 0

Operating profit 2,206 3,778 3,063 4,257 4,763

Recurring non operating income 12 16 31 33 35

Associates 12 16 31 33 35

Goodwill amortization 0 0 0 0 0

Non recurring items (50) (80) (88) (97) (106)

Profit before tax 2,168 3,714 3,006 4,193 4,692

Tax (560) (685) (701) (779) (985)

Profit after tax 1,608 3,029 2,305 3,414 3,707

Minority interests (8) (11) (12) (13) (15)

Preferred dividends 0 0 0 0 0

Other items 0 0 0 0 0

Reported net profit 1,600 3,018 2,293 3,401 3,693

Non recurring items & goodwill (net) 50 80 88 97 106

Recurring net profit 1,650 3,098 2,381 3,497 3,799

Supplementary items

Embedded value 27,239 31,408 34,018 38,191 43,097

One year's new business value 932 1,188 1,433 1,663 1,929

Per share (USD)

Recurring EPS * 0.14 0.26 0.20 0.29 0.32

Reported EPS 0.13 0.25 0.19 0.28 0.31

DPS 0.04 0.05 0.05 0.06 0.07

Embedded value per share 2 3 3 3 4

Growth

Net premium earned (%) 11.0 6.1 13.6 11.1 11.4

Underwriting profit (%) (108.8) (1,154.0) (25.3) 26.4 16.3

Operating profit (%) (38.7) 71.3 (18.9) 39.0 11.9

Reported net profit (%) (40.8) 88.6 (24.0) 48.3 8.6

Recurring EPS (%) (39.8) 87.8 (23.1) 46.9 8.6

Reported EPS (%) (40.8) 88.6 (24.0) 48.3 8.6

Income breakdown


Net investment income (%) 12.5 34.6 26.5 30.3 30.8

Other income (%) 0.8 0.6 0.7 0.6 0.6

Operating performance

Underwriting margin (%) 2.6 (25.4) (16.7) (19.0) (19.9)

Operating margin (%) 17.93 28.94 20.65 25.83 25.94

Investment yield (%) 2.16 7.00 4.59 5.29 5.26

Effective tax rate (%) 25.8 18.4 23.3 18.6 21.0

Dividend payout on recurring profit (%) 30.8 18.5 25.7 20.5 22.2

ROE (%) 8.1 12.9 8.4 11.1 11.0

ROE - COE (%) - - - - -

ROA (%) 1.49 2.50 1.65 2.15 2.10

Cash & equivalents 65.8 (31.5) (24.3) 5.0 5.0

Bank deposits - - - - -

Debt securities 9.9 20.4 13.6 13.7 11.9

Equity securities (13.5) 23.1 21.0 20.8 18.8

* Pre exceptional, pre-goodwill and fully diluted

Sources: AIA; BNP Paribas estimates



Financial statements AIA

Balance Sheet (USD m) Year Ending Nov 2011A 2012A 2013E 2014E 2015E

Cash & equivalents 4,303 2,948 2,230 2,342 2,459

Bank deposits 0 0 0 0 0

Debt securities 72,517 87,287 99,188 112,782 126,253

Equity securities 19,737 24,294 29,400 35,528 42,195

Investment properties 896 1,035 1,087 1,141 1,198

Other financial assets 0 0 0 0 0

Total investments 97,453 115,564 131,905 151,794 172,106

Tangible fixed assets 359 412 466 688 767

Associates 61 91 96 100 105

Deferred acquisition cost 12,818 14,161 15,962 17,364 18,917

Goodwill 0 0 0 0 0

Other intangible assets 276 272 311 344 383

Other assets 3,494 3,939 6,716 1,592 (583)

Total assets 114,461 134,439 155,457 171,882 191,695

Insurance reserve 78,752 90,574 100,862 113,178 126,836

Policyholders' deposits 8,360 8,865 10,208 11,765 13,354

Unearned premium reserve 0 0 0 0 0

Other reserves 0 0 0 0 0

Total insurance liabilities 87,112 99,439 111,070 124,943 140,191

Hybrid capital 0 0 0 0 0

Other liabilities 5,934 8,172 14,147 13,930 14,904

Total liabilities 93,046 107,611 125,216 138,873 155,095

Share capital 12,044 12,044 12,044 12,044 12,044

Reserves 9,269 14,653 18,053 20,808 24,385

Total equity 21,313 26,697 30,097 32,852 36,429

Minority interests 102 131 143 156 171

Total liabilities & equity 114,461 134,439 155,457 171,882 191,695

Per share (USD)

Book value per share 1.77 2.22 2.50 2.73 3.02

Tangible book value per share 0.68 1.02 1.15 1.26 1.42

Growth

Total investments (%) 5.7 18.6 14.1 15.1 13.4

Total assets (%) 6.1 17.5 15.6 10.6 11.5

Total insurance liabilities (%) 5.9 14.2 11.7 12.5 12.2

Book value per share (%) 9.0 25.3 12.7 9.2 10.9

Levarage & capital measures

Equity/assets (%) 18.6 19.9 19.4 19.1 19.0

Tangible equity/assets (%) 7.2 9.1 8.9 8.8 8.9

Solvency margin ratio (%) 310.9 353.2 348.4 366.3 384.1

Valuation 2011A 2012A 2013E 2014E 2015E

Recurring P/E (x) * 31.3 16.7 21.7 14.8 13.6

Reported P/E (x) 32.3 17.1 22.5 15.2 14.0

Dividend yield (%) 1.0 1.1 1.2 1.4 1.6

Price/book (x) 2.4 1.9 1.7 1.6 1.4

Price/tangible book (x) 6.3 4.2 3.7 3.4 3.0

Price/tangible book @ target price (x) 8.2 5.5 4.9 4.4 3.9

Price/embedded value (x) 1.9 1.6 1.5 1.4 1.2

Price/embedded value @ target price (x) 2.5 2.1 2.0 1.8 1.6


Sources: AIA; BNP Paribas estimates



Financial statements China Life

Profit and Loss (RMB m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E


Reinsurance (232) (384) (652) (665) (685)





G&A cost (25,419) (27,196) (28,520) (29,579) (31,131)

Other income (181,323) (185,222) (185,408) (189,275) (194,926)


Underwriting profit (33,450) (38,853) (37,860) (38,233) (37,583)

Interest and dividend income 60,722 73,243 85,262 98,845 113,672

Capital gains/(losses) (10,871) (27,189) (15,457) (22,027) (25,331)



Other income 1,899 730 0 0 0

Other operating costs 0 0 (537) (609) (727)


Recurring non operating income 2,213 3,037 3,368 3,873 4,454

Associates 2,213 3,037 3,368 3,873 4,454


Non recurring items 0 0 0 0 0


Tax (2,022) 304 (4,173) (5,022) (6,538)

Profit after tax 18,491 11,272 30,603 36,827 47,947

Minority interests (160) (211) (2,099) (2,526) (3,288)






Supplementary items

Embedded value 292,854 334,327 385,507 434,917 493,773

One year's new business value 20,199 20,834 21,496 22,155 22,773

Per share (RMB)

Recurring EPS * 0.65 0.39 1.01 1.21 1.58

Reported EPS 0.65 0.39 1.01 1.21 1.58

DPS 0.23 0.14 0.30 0.36 0.47


Growth


Underwriting profit (%) 18.6 16.2 (2.6) 1.0 (1.7)

Operating profit (%) (53.4) (56.7) 296.0 20.9 31.7

Reported net profit (%) (45.5) (39.7) 157.7 20.3 30.2

Recurring EPS (%) (45.5) (39.7) 157.7 20.3 30.2

Reported EPS (%) (45.5) (39.7) 157.7 20.3 30.2

Income breakdown



Other income (%) 0.5 0.2 0.0 0.0 0.0


Underwriting margin (%) (10.5) (12.1) (11.6) (11.5) (11.0)



Effective tax rate (%) 9.9 (2.8) 12.0 12.0 12.0


ROE (%) 9.2 5.4 12.3 13.6 15.9

ROE - COE (%) (2.1) (5.9) 1.1 2.3 4.7

ROA (%) 1.24 0.65 1.50 1.57 1.78

Cash & equivalents 17.0 24.1 15.0 15.0 15.0

Bank deposits 17.9 23.1 15.0 15.0 15.0

Debt securities 9.6 24.1 15.0 15.0 15.0

Equity securities (7.2) (8.9) 15.0 15.0 15.0


Sources: China Life; BNP Paribas estimates



Financial statements China Life

Balance Sheet (RMB m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E


Bank deposits 520,793 641,080 737,242 847,828 975,003

Debt securities 666,684 827,068 951,128 1,093,797 1,257,867


Investment properties 0 0 0 0 0

Other financial assets 63,474 81,313 93,510 107,536 123,667

Total investments 1,488,816 1,784,685 2,052,388 2,360,246 2,714,283

Tangible fixed assets 20,231 22,335 25,685 29,538 33,969

Associates 24,448 28,991 33,340 38,341 44,092

Deferred acquisition cost 0 0 0 0 0

Goodwill 0 0 0 0 0


Other assets 50,412 62,905 72,341 83,192 95,671

Total assets 1,583,907 1,898,916 2,183,753 2,511,316 2,888,014

Insurance reserve 1,190,486 1,375,504 1,589,502 1,793,451 2,008,646


Unearned premium reserve 5,698 5,955 6,881 7,764 8,696

Other reserves 3,189 3,078 3,557 4,013 4,495

Total insurance liabilities 1,269,170 1,451,176 1,677,899 1,905,669 2,151,750



Total liabilities 1,390,519 1,675,815 1,940,696 2,244,249 2,589,685

Share capital 28,265 28,265 28,265 28,265 28,265

Reserves 163,265 192,820 212,776 236,787 268,047

Total equity 191,530 221,085 241,041 265,052 296,312

Minority interests 1,858 2,016 2,016 2,016 2,016

Total liabilities & equity 1,583,907 1,898,916 2,183,753 2,511,316 2,888,014

Per share (RMB)



Growth


Total assets (%) 12.3 19.9 15.0 15.0 15.0


Book value per share (%) (8.2) 15.4 9.0 10.0 11.8


Equity/assets (%) 12.1 11.6 11.0 10.6 10.3



Valuation 2011A 2012A 2013E 2014E 2015E

Recurring P/E (x) * 21.9 36.3 14.1 11.7 9.0

Reported P/E (x) 21.9 36.3 14.1 11.7 9.0

Dividend yield (%) 1.6 1.0 2.1 2.6 3.3

Price/book (x) 2.1 1.8 1.7 1.5 1.4






Sources: China Life; BNP Paribas estimates



Financial statements Ping An Insurance



Reinsurance (10,970) (12,851) (21,759) (24,412) (27,431)





G&A cost (50,575) (68,477) (78,584) (91,249) (102,734)

Other income (78,873) (75,023) (68,539) (76,803) (87,718)







Other income 9,959 15,317 15,081 17,453 19,521

Other operating costs (23,430) (31,375) (40,243) (46,583) (53,227)


Recurring non operating income 1,068 (46) 47 86 113

Associates 1,068 (46) (103) (109) (113)




Tax (7,444) (5,588) (10,702) (12,220) (14,162)

Profit after tax 22,582 26,750 35,132 40,546 47,014

Minority interests (3,107) (6,700) (7,298) (8,634) (10,352)






Supplementary items

Embedded value 235,627 285,873 326,669 371,479 420,328


Per share (RMB)

Recurring EPS * 2.46 2.53 3.52 4.03 4.63

Reported EPS 2.46 2.53 3.52 4.03 4.63

DPS 0.40 0.45 0.70 0.81 0.93


Growth


Underwriting profit (%) (31.9) 135.0 (21.6) 64.0 45.0

Operating profit (%) 38.7 11.8 41.4 15.1 15.9

Reported net profit (%) 12.5 3.0 38.8 14.7 14.9

Recurring EPS (%) 8.6 3.0 38.8 14.7 14.9

Reported EPS (%) 8.6 3.0 38.8 14.7 14.9

Income breakdown



Other income (%) 3.9 5.1 4.4 4.5 4.4







ROE (%) 16.0 13.8 16.3 16.4 16.5

ROE - COE (%) 3.2 1.0 3.5 3.6 3.7

ROA (%) 1.31 1.04 1.12 1.11 1.14


Bank deposits 17.1 37.3 20.0 15.0 10.0

Debt securities 31.1 10.9 20.0 15.0 10.0

Equity securities 35.4 12.6 20.0 15.0 10.0


Sources: Ping An Insurance; BNP Paribas estimates



Financial statements Ping An Insurance



Bank deposits 157,977 216,941 260,329 299,379 329,316

Debt securities 689,110 763,902 916,682 1,054,185 1,159,603


Investment properties 9,076 14,850 17,820 20,493 22,542

Other financial assets 257,819 1,119,807 1,343,768 1,545,334 1,699,867



Associates 11,837 9,960 11,952 13,745 15,119


Goodwill 0 0 0 0 0

Other intangible assets 33,584 37,536 45,043 51,800 56,980

Other assets 889,980 297,485 356,982 410,529 451,582

Total assets 2,285,424 2,844,266 3,413,119 3,925,087 4,317,596

Insurance reserve 656,902 767,889 914,015 1,080,542 1,268,888



Other reserves 25,754 31,486 37,478 44,306 52,029

Total insurance liabilities 758,404 882,593 1,051,195 1,240,861 1,451,966


Other liabilities 1,355,678 1,752,024 2,120,486 2,406,561 2,545,809


Share capital 7,916 7,916 7,916 7,916 7,916

Reserves 122,951 151,701 174,228 199,758 229,087

Total equity 130,867 159,617 182,144 207,674 237,003



Per share (RMB)



Growth


Total assets (%) 95.1 24.5 20.0 15.0 10.0




Equity/assets (%) 5.7 5.6 5.3 5.3 5.5



Valuation 2011A 2012A 2013E 2014E 2015E

Recurring P/E (x) * 16.0 15.6 11.2 9.8 8.5

Reported P/E (x) 16.0 15.6 11.2 9.8 8.5

Dividend yield (%) 1.0 1.1 1.8 2.0 2.3

Price/book (x) 2.4 2.0 1.7 1.5 1.3






Sources: Ping An Insurance; BNP Paribas estimates



Financial statements China Pacific Insurance



Reinsurance (13,384) (11,795) (16,989) (18,875) (21,058)



Policy acquisition cost 0 0 0 0 0


G&A cost (33,120) (38,224) (42,989) (47,448) (52,402)

Other income (60,399) (62,095) (56,372) (59,362) (64,121)








Other operating costs (1,218) (2,745) (492) (573) (652)


Recurring non operating income 495 0 1 0 (1)

Associates 495 0 1 0 (1)




Tax (2,006) (983) (2,003) (2,676) (3,487)

Profit after tax 8,393 5,130 7,952 10,619 13,920







Supplementary items

Embedded value 113,564 135,280 146,181 159,134 173,898


Per share (RMB)

Recurring EPS * 0.97 0.56 0.87 1.15 1.51

Reported EPS 0.97 0.56 0.87 1.15 1.51

DPS 0.35 0.35 0.35 0.35 0.35


Growth


Underwriting profit (%) (40.1) 74.6 72.4 9.1 (4.0)

Operating profit (%) (7.3) (38.3) 62.8 33.6 31.0

Reported net profit (%) (2.9) (38.9) 54.4 33.5 31.0

Recurring EPS (%) (2.9) (42.0) 54.4 33.5 31.0

Reported EPS (%) (2.9) (42.0) 54.4 33.5 31.0

Income breakdown



Other income (%) 0.0 0.0 0.0 0.0 0.0







ROE (%) 10.6 5.9 7.9 9.8 11.9

ROE - COE (%) (1.2) (5.9) (3.9) (2.0) 0.1

ROA (%) 1.60 0.82 1.09 1.28 1.50

Cash & equivalents (0.4) 60.2 15.0 12.0 11.0

Bank deposits 28.7 19.1 15.0 12.0 11.0

Debt securities 19.4 20.3 15.0 12.0 11.0



Sources: CPIC; BNP Paribas estimates



Financial statements China Pacific Insurance



Bank deposits 140,953 167,897 193,082 216,251 240,039

Debt securities 269,462 324,032 372,637 417,353 463,262








Goodwill 0 0 0 0 0


Other assets 38,730 43,050 49,507 55,448 61,548

Total assets 570,612 681,502 783,727 877,775 974,330


Policyholders' deposits 0 0 0 0 0


Other reserves 21,196 22,340 27,735 33,565 39,193





Share capital 8,600 9,062 9,062 9,062 9,062

Reserves 68,196 87,115 93,890 101,180 111,718

Total equity 76,796 96,177 102,952 110,242 120,780



Per share (RMB)



Growth


Total assets (%) 19.9 19.4 15.0 12.0 11.0




Equity/assets (%) 13.5 14.1 13.1 12.6 12.4



Valuation 2011A 2012A 2013E 2014E 2015E

Recurring P/E (x) * 19.9 34.3 22.2 16.6 12.7

Reported P/E (x) 19.9 34.3 22.2 16.6 12.7

Dividend yield (%) 1.8 1.8 1.8 1.8 1.8

Price/book (x) 2.1 1.8 1.7 1.6 1.4






Sources: CPIC; BNP Paribas estimates



Financial statements New China Life Insurance



Reinsurance 584 386 (151) (157) (164)





G&A cost (9,428) (10,190) (11,013) (12,356) (13,895)

Other income (66,044) (68,588) (66,193) (65,867) (67,886)




Capital gains/(losses) (982) (3,237) (2,354) (3,748) (5,997)




Other operating costs (537) (1,035) (2,203) (2,336) (2,490)







Tax (475) 197 (1,075) (1,350) (1,484)

Profit after tax 2,800 2,930 5,250 6,590 7,246







Supplementary items

Embedded value 48,991 56,870 64,682 74,055 84,262


Per share (RMB)

Recurring EPS * 0.90 0.94 1.68 2.11 2.32

Reported EPS 0.90 0.94 1.68 2.11 2.32

DPS 0.09 0.32 0.17 0.21 0.23


Growth

Net premium earned (%) 4.1 5.3 (0.2) 3.6 4.8

Underwriting profit (%) 6.4 6.1 48.1 14.9 17.6

Operating profit (%) 45.2 (16.5) 131.3 25.5 10.0


Recurring EPS (%) (52.1) 4.5 79.2 25.5 10.0

Reported EPS (%) (52.1) 4.5 79.2 25.5 10.0

Income breakdown



Other income (%) 0.0 0.0 0.0 0.0 0.0





Effective tax rate (%) 14.5 (7.2) 17.0 17.0 17.0


ROE (%) 14.8 8.7 13.7 15.1 14.5

ROE - COE (%) - - - - -

ROA (%) 0.81 0.67 0.97 1.01 0.93

Cash & equivalents (22.9) 18.8 20.0 20.0 20.0

Bank deposits 122.7 39.8 20.0 20.0 20.0

Debt securities 15.6 22.8 20.0 20.0 20.0



Sources: NCI; BNP Paribas estimates



Financial statements New China Life Insurance



Bank deposits 122,949 171,853 206,224 247,468 296,962

Debt securities 190,444 233,822 280,586 336,704 404,044


Investment properties 451 1,635 1,962 2,354 2,825

Other financial assets 2,154 308 370 444 532



Associates 709 708 850 1,020 1,223


Goodwill 0 0 0 0 0


Other assets 15,569 23,988 28,786 34,543 41,451

Total assets 386,771 493,693 592,432 710,918 853,102



Unearned premium reserve 604 750 902 1,066 1,242

Other reserves 392 452 544 643 748





Share capital 3,117 3,120 3,120 3,120 3,120

Reserves 28,189 32,750 37,472 43,400 49,918

Total equity 31,306 35,870 40,592 46,520 53,038



Per share (RMB)



Growth


Total assets (%) 27.0 27.6 20.0 20.0 20.0




Equity/assets (%) 8.1 7.3 6.9 6.5 6.2



Valuation 2011A 2012A 2013E 2014E 2015E

Recurring P/E (x) * 20.3 19.4 10.8 8.6 7.8

Reported P/E (x) 20.3 19.4 10.8 8.6 7.8

Dividend yield (%) 0.5 1.8 0.9 1.2 1.3

Price/book (x) 1.8 1.6 1.4 1.2 1.1






Sources: NCI; BNP Paribas estimates



Financial statements Samsung Life

Profit and Loss (KRW b) Year Ending Mar 2011A 2012A 2013E 2014E 2015E


Reinsurance (22) (16) (18) (16) (16)




Securities trading income (1,856) (1,840) (2,045) (1,958) (1,867)

G&A cost (3) (1) 0 0 0



Underwriting profit 1,671 2,207 7,277 4,231 4,188


Capital gains/(losses) 0 0 0 0 0

Dividend and interest to policyholders (835) (1,093) (1,145) (1,159) (1,278)




Operating profit 1,644 556 628 1,137 1,527






Tax (685) (229) (287) (403) (481)

Profit after tax 1,925 947 991 1,262 1,507




Reported net profit 1,925 947 991 1,262 1,507


Recurring net profit 1,925 947 991 1,262 1,507

Supplementary items

Embedded value 15,707 18,123 21,097 22,070 23,358


Per share (KRW)

Recurring EPS * 9,624 4,737 4,956 6,312 7,533

Reported EPS 9,624 4,737 4,956 6,312 7,533

DPS 2,000 1,970 1,970 2,463 2,660

Embedded value per share 78,533 90,613 105,483 110,351 116,788

Growth

Net premium earned (%) 0.5 1.0 50.8 (26.5) 1.7

Underwriting profit (%) (599.3) 32.1 229.7 (41.8) (1.0)

Operating profit (%) 435.2 (66.1) 12.8 81.1 34.3

Reported net profit (%) 112.4 (50.8) 4.6 27.4 19.3

Recurring EPS (%) 112.4 (50.8) 4.6 27.4 19.3

Reported EPS (%) 112.4 (50.8) 4.6 27.4 19.3

Income breakdown



Other income (%) 0.0 0.0 0.0 0.0 0.0


Underwriting margin (%) 11.5 15.0 32.8 25.9 25.2





ROE (%) 14.0 5.7 5.2 6.2 7.1

ROE - COE (%) 2.2 (6.1) (6.6) (5.6) (4.7)

ROA (%) 1.38 0.62 0.59 0.69 0.77

Cash & equivalents 26.0 (33.2) 17.7 9.8 7.4


Debt securities 13.4 13.2 8.6 7.7 7.0



Sources: Samsung Life; BNP Paribas estimates



Financial statements Samsung Life

Balance Sheet (KRW b) Year Ending Mar 2011A 2012A 2013E 2014E 2015E



Debt securities 69,472 78,639 85,382 91,927 98,379








Goodwill 0 0 0 0 0


Other assets 22,204 24,872 28,241 32,161 36,545

Total assets 146,354 161,022 174,393 189,006 204,280









Share capital 100 100 100 100 100

Reserves 15,290 17,963 19,947 20,717 21,692

Total equity 15,390 18,063 20,047 20,817 21,792



Per share (KRW)

Book value per share 76,950 90,315 100,235 104,085 108,959

Tangible book value per share 57,174 69,452 78,969 83,131 87,791

Growth


Total assets (%) 10.0 10.0 8.3 8.4 8.1




Equity/assets (%) 10.5 11.2 11.5 11.0 10.7



Valuation 2011A 2012A 2013E 2014E 2015E

Recurring P/E (x) * 11.0 22.3 21.3 16.7 14.0

Reported P/E (x) 11.0 22.3 21.3 16.7 14.0

Dividend yield (%) 1.9 1.9 1.9 2.3 2.5

Price/book (x) 1.4 1.2 1.1 1.0 1.0






Sources: Samsung Life; BNP Paribas estimates



Financial statements Hanwha Life



Reinsurance (14) (11) (12) (10) (10)




Securities trading income (1,097) (1,079) (1,144) (1,143) (1,099)

G&A cost (3) (3) (3) (3) (3)



Underwriting profit 248 723 2,541 1,258 1,311


Capital gains/(losses) 0 0 0 0 0

Dividend and interest to policyholders (334) (439) (342) (375) (401)




Operating profit (65) (90) (67) 125 248





Profit before tax 651 707 757 868 1,011

Tax (170) (173) (179) (210) (245)

Profit after tax 481 534 579 658 766




Reported net profit 481 534 579 658 766


Recurring net profit 481 534 579 658 766

Supplementary items

Embedded value 6,695 6,894 7,043 7,208 7,641

One year's new business value 427 457 456 473 496

Per share (KRW)

Recurring EPS * 554 615 666 757 882

Reported EPS 554 615 666 757 882

DPS 230 230 230 250 280


Growth

Net premium earned (%) 2.9 4.1 36.9 (23.8) 3.6

Underwriting profit (%) (230.2) 191.4 251.4 (50.5) 4.2

Operating profit (%) (65.8) 38.7 (25.5) (286.5) 97.9


Recurring EPS (%) 15.1 10.9 8.3 13.7 16.5

Reported EPS (%) 15.1 10.9 8.3 13.7 16.5

Income breakdown



Other income (%) 0.0 0.0 0.0 0.0 0.0


Underwriting margin (%) 3.7 10.3 26.5 17.2 17.3

Operating margin (%) (0.97) (1.29) (0.70) 1.72 3.28




ROE (%) 8.1 8.4 8.7 9.3 10.1

ROE - COE (%) (0.5) (0.2) 0.0 0.7 1.5

ROA (%) 0.78 0.81 0.81 0.84 0.89

Cash & equivalents (9.1) 172.7 (16.7) 4.2 9.2


Debt securities 6.8 3.2 12.4 10.6 10.1

Equity securities 164.8 (54.8) 9.4 10.4 10.2


Sources: Hanwha Life; BNP Paribas estimates



Financial statements Hanwha Life




Debt securities 28,669 29,600 33,280 36,813 40,519

Equity securities 1,354 612 670 739 814







Goodwill 0 0 0 0 0


Other assets 13,069 14,022 15,091 16,949 18,897

Total assets 63,721 68,861 74,358 81,793 89,973









Share capital 4,343 4,343 4,343 4,343 4,343

Reserves 1,823 2,155 2,515 2,962 3,493

Total equity 6,165 6,497 6,857 7,305 7,835



Per share (KRW)



Growth


Total assets (%) 8.0 8.1 8.0 10.0 10.0




Equity/assets (%) 9.7 9.4 9.2 8.9 8.7



Valuation 2011A 2012A 2013E 2014E 2015E

Recurring P/E (x) * 12.1 10.9 10.0 8.8 7.6

Reported P/E (x) 12.1 10.9 10.0 8.8 7.6

Dividend yield (%) 3.4 3.4 3.4 3.7 4.2

Price/book (x) 0.9 0.9 0.8 0.8 0.7






Sources: Hanwha Life; BNP Paribas estimates



Financial statements Samsung F&M



Reinsurance (910) (905) (1,055) (1,238) (1,448)




Securities trading income - - - - -

G&A cost (1,198) (1,068) (1,207) (1,373) (1,513)


Other provisions (55) 0 0 0 0

Underwriting profit (327) (260) (445) (299) (234)


Capital gains/(losses) (173) (243) (258) (263) (281)




Other operating costs - - - - -

Operating profit 922 1,101 1,074 1,513 1,872

Recurring non operating income (33) (43) (43) (43) (43)




Profit before tax 888 1,058 1,031 1,470 1,829

Tax (223) (273) (237) (356) (443)

Profit after tax 665 785 794 1,114 1,386




Reported net profit 665 785 794 1,114 1,386


Recurring net profit 665 785 794 1,114 1,386

Supplementary items

Embedded value 9,549 10,834 11,931 13,263 14,888

One year's new business value 668 696 786 904 1,040

Per share (KRW)

Recurring EPS * 13,148 15,515 15,707 22,034 27,413

Reported EPS 13,148 15,515 15,707 22,034 27,413

DPS 3,750 3,750 4,000 4,155 5,138


Growth


Underwriting profit (%) 14.7 (20.3) 71.0 (32.8) (22.0)

Operating profit (%) 27.2 19.4 (2.5) 41.0 23.7


Recurring EPS (%) 26.8 18.0 1.2 40.3 24.4

Reported EPS (%) 26.8 18.0 1.2 40.3 24.4

Income breakdown



Other income (%) 0.0 0.0 0.0 0.0 0.0







ROE (%) 12.4 11.6 9.9 12.6 14.0

ROE - COE (%) 2.0 1.2 (0.5) 2.2 3.6

ROA (%) 2.28 2.23 1.91 2.37 2.65



Debt securities 17.8 15.2 20.6 13.8 13.5



Sources: Samsung F&M; BNP Paribas estimates



Financial statements Samsung F&M


Cash & equivalents 345 971 1,315 1,508 1,712


Debt securities 16,246 18,717 22,580 25,690 29,149








Goodwill 0 0 0 0 0


Other assets 4,544 5,913 5,667 5,526 5,401

Total assets 31,588 38,621 44,397 49,434 55,179

Insurance reserve 1,188 0 0 0 0


Unearned premium reserve - - - - -



Hybrid capital - - - - -



Share capital 26 26 26 26 26

Reserves 5,779 7,669 8,397 9,301 10,428

Total equity 5,805 7,695 8,424 9,328 10,454



Per share (KRW)



Growth


Total assets (%) 18.5 22.3 15.0 11.3 11.6




Equity/assets (%) 18.4 19.9 19.0 18.9 18.9


Solvency margin ratio (%) - - - 0.0 0.0

Valuation 2011A 2012A 2013E 2014E 2015E

Recurring P/E (x) * 18.5 15.7 15.5 11.1 8.9

Reported P/E (x) 18.5 15.7 15.5 11.1 8.9

Dividend yield (%) 1.5 1.5 1.6 1.7 2.1

Price/book (x) 2.1 1.6 1.5 1.3 1.2






Sources: Samsung F&M; BNP Paribas estimates



Financial statements Fubon FHC

Profit and Loss (TWD m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E


Reinsurance 0 0 0 0 0





G&A cost (22,477) (24,301) (26,924) (27,640) (28,601)

Other income (164,803) (294,134) (215,104) (250,549) (285,940)

Other provisions (902) 612 (2,582) (2,063) (2,396)



Capital gains/(losses) 26,100 26,638 28,448 29,343 31,320



Other income 0 16,818 0 0 0








Tax (5,122) (4,420) (3,086) (3,048) (3,030)

Profit after tax 30,687 28,983 27,449 32,528 33,128

Minority interests (144) 0 0 0 0






Supplementary items

Embedded value 176,000 217,900 260,653 297,903 335,250


Per share (TWD)

Recurring EPS * 3.48 3.13 2.88 3.41 3.48

Reported EPS 3.48 3.13 2.88 3.41 3.48

DPS 0.95 0.95 1.00 1.30 1.54


Growth

Net premium earned (%) (21.5) 19.5 (21.9) 14.8 13.4


Operating profit (%) 54.7 (6.7) (8.6) 16.5 1.6

Reported net profit (%) 53.4 (5.1) (5.3) 18.5 1.8

Recurring EPS (%) 45.7 (10.1) (7.8) 18.5 1.8

Reported EPS (%) 45.7 (10.1) (7.8) 18.5 1.8

Income breakdown



Other income (%) 0.0 3.2 0.0 0.0 0.0







ROE (%) 13.5 10.8 8.9 10.3 10.2

ROE - COE (%) 5.3 2.5 0.6 2.0 1.9

ROA (%) 0.87 0.75 0.65 0.73 0.69


Bank deposits (25.3) (5.4) 2.0 1.5 1.2

Debt securities - - - - -

Equity securities - - - - -


Sources: Fubon FHC; BNP Paribas estimates



Financial statements Fubon FHC

Balance Sheet (TWD m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E


Bank deposits 78,798 74,518 76,013 77,178 78,121

Debt securities 0 0 0 0 0

Equity securities 0 0 0 0 0


Other financial assets 2,577,850 2,982,485 3,165,581 3,362,608 3,573,900



Associates 3,605 4,691 4,926 5,173 5,432


Goodwill 9,503 9,503 9,503 9,503 9,503


Other assets 693,095 801,808 863,007 924,165 989,039

Total assets 3,618,135 4,083,257 4,344,379 4,619,989 4,914,442




Other reserves 37,658 33,706 23,808 15,752 7,347





Share capital 90,137 95,269 95,269 95,269 95,269

Reserves 143,545 210,004 216,155 226,071 233,200

Total equity 233,683 305,273 311,424 321,340 328,470



Per share (TWD)



Growth


Total assets (%) 4.9 12.9 6.4 6.3 6.4




Equity/assets (%) 6.5 7.5 7.2 7.0 6.7



Valuation 2011A 2012A 2013E 2014E 2015E

Recurring P/E (x) * 10.8 12.1 13.1 11.0 10.8

Reported P/E (x) 10.8 12.1 13.1 11.0 10.8

Dividend yield (%) 2.5 2.5 2.7 3.4 4.1

Price/book (x) 1.5 1.2 1.2 1.1 1.1






Sources: Fubon FHC; BNP Paribas estimates



Financial statements Cathay FHC

Profit and Loss (TWD m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E


Reinsurance 0 0 0 0 0





G&A cost (35,053) (36,949) (37,109) (37,340) (37,782)

Other income (197,428) (305,500) (227,667) (224,336) (230,129)

Other provisions 0 (3,172) (1,459) (1,879) (1,905)



Capital gains/(losses) (7,189) 19,569 46,430 43,101 47,386



Other income 116,290 135,085 173,244 173,756 174,322








Tax 1,667 38 (4,776) (5,099) (5,339)

Profit after tax 11,285 15,331 27,347 28,505 30,315

Minority interests (156) (56) 372 372 372






Supplementary items

Embedded value 0 266,930 282,538 293,671 321,717


Per share (TWD)

Recurring EPS * 1.07 1.41 2.44 2.54 2.70

Reported EPS 1.07 1.41 2.44 2.54 2.70

DPS 0.59 0.45 0.66 0.97 1.02

Embedded value per share 23 25 26 28

Growth

Net premium earned (%) (24.2) 14.3 (17.7) 0.4 2.6


Operating profit (%) 306.0 59.0 110.0 4.6 6.1


Recurring EPS (%) 143.2 30.8 73.4 4.2 6.3

Reported EPS (%) 132.8 30.8 73.4 4.2 6.3

Income breakdown



Other income (%) 19.0 18.7 24.3 24.0 23.2





Effective tax rate (%) (17.3) (0.2) 14.9 15.2 15.0


ROE (%) 5.1 6.6 10.7 10.3 10.2

ROE - COE (%) (3.9) (2.4) 1.6 1.3 1.2

ROA (%) 0.23 0.29 0.48 0.47 0.46


Bank deposits (11.8) 19.2 4.7 4.0 3.3

Debt securities - - - - -

Equity securities - - - - -


Sources: Cathay FHC; BNP Paribas estimates



Financial statements Cathay FHC

Balance Sheet (TWD m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E


Bank deposits 87,407 104,176 109,037 113,358 117,062

Debt securities 0 0 0 0 0

Equity securities 0 0 0 0 0


Other financial assets 2,935,308 2,976,452 3,202,076 3,452,526 3,730,322



Associates 1,288 1,146 2,241 3,404 4,646


Goodwill 8,263 8,571 8,571 8,571 8,571


Other assets 1,206,352 1,592,570 1,737,417 1,896,875 2,072,436

Total assets 5,005,403 5,440,382 5,882,099 6,364,289 6,890,939




Other reserves 37,058 36,392 38,944 41,686 44,533





Share capital 103,575 113,733 113,733 113,733 113,733

Reserves 110,086 136,179 155,547 176,331 198,305

Total equity 213,661 249,912 269,280 290,064 312,038



Per share (TWD)



Growth


Total assets (%) 6.7 8.7 8.1 8.2 8.3




Equity/assets (%) 4.3 4.6 4.6 4.6 4.5



Valuation 2011A 2012A 2013E 2014E 2015E

Recurring P/E (x) * 37.4 28.6 16.5 15.8 14.9

Reported P/E (x) 37.4 28.6 16.5 15.8 14.9

Dividend yield (%) 1.5 1.1 1.6 2.4 2.5

Price/book (x) 1.9 1.8 1.7 1.6 1.5



Price/embedded value (x) - 1.7 1.6 1.6 1.4

Price/embedded value @ target price (x) - 1.7 1.6 1.5 1.4


Sources: Cathay FHC; BNP Paribas estimates



History of change in investment rating and/or target price

AIA (1299 HK)

Dominic Chan started covering this stock from 28-Aug-2012 Price and TP are in local currency

Valuation and risks: Our target price is based on actuarial appraisal value. The key risk to our TP is Asia corporate credit risk.


China Life (2628 HK)

Ling Tang started covering this stock from 21-Aug-2012 Price and TP are in local currency

Valuation and risks: We apply a 12.5x multiple on 2013E adjusted VNB (EV/VNB adjusted 11%/14% to reflect a conservative investment yield), using a 3-stage DDM, to derive our TP. Downside risk is maturity payment in 2013.


Ping An Insurance (2318 HK)

Ling Tang started covering this stock from 02-May-2013 Price and TP are in local currency

Valuation and risks: Downside risk to our SOTP-based target price is a weaker than expected A-share market.


Date Reco TP

27-Aug-12 BUY 38.47

17.71

22.71

27.71

32.71

37.71

42.71

Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13

(HKD) AIA Target Price

Date Reco TP

2-Jul-09 REDUCE 22.69

26-Aug-09 HOLD 31.38

1-May-13 BUY 26.00

15.35

20.35

25.35

30.35

35.35

40.35

Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13

(HKD) China Life Target Price

Date Reco TP

2-Jul-09 HOLD 57.44

17-Aug-09 BUY 74.59

2-Feb-12 HOLD 66.20

1-May-13 BUY 80.00

34.00

44.00

54.00

64.00

74.00

84.00

94.00

104.00

114.00

124.00


(HKD) Ping An Insurance Target Price



China Pacific Insurance (2601 HK)

Ling Tang started covering this stock from 19-Jun-2013 Price and TP are in local currency

Valuation and risks: Downside risk to our EV-based TP is a worse-than-expected investment environment.


New China Life Insurance (1336 HK)

Ling Tang started covering this stock from 02-May-2013 Price and TP are in local currency

Valuation and risks: Our target price is based on a VNB multiple of 5.1x, which is based on 3-stage DDM. The key downside risk is from A-share movement, as New China Life is highly sensitive to the equity market.


Samsung Life (032830 KS)

Michelle Cho started covering this stock from 05-Aug-2010 Price and TP are in local currency

Valuation and risks: Downside risks to our appraisal value based TP include 1) continued volatility in the capital market, with an adverse impact on investment results; 2) aggressive BOK rate cuts; and 3) macro slowdown associated with demand destruction.


Date Reco TP

15-Jan-10 BUY 39.46

18.13

23.13

28.13

33.13

38.13

43.13

Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13

(HKD) CPIC Target Price

Date Reco TP

1-May-13 BUY 33.00

19.39

24.39

29.39

34.39

39.39

Jan-12 Jul-12 Jan-13

(HKD) NCI Target Price

Date Reco TP

4-Aug-10 BUY 128,000.00

11-Feb-11 BUY 137,000.00

8-Nov-11 BUY 120,000.00

21-Jun-12 BUY 125,000.00

24-Jan-13 BUY 128,000.00

72,090

82,090

92,090

102,090

112,090

122,090

132,090

142,090

May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13

(KRW) Samsung Life Target Price



Hanwha Life (088350 KS)


Valuation and risks: Key downside risks to our TP, based on appraisal value methodology, are 1) lower than expected premium growth; 2) aggressive base rate cuts by BOK; 3) adverse capital market backdrop which could impact asset yields.


Samsung F&M (000810 KS)


Valuation and risks: Key risks to our TP, derived from a mix of GGM and appraisal value methodologies, are 1) lower than expected premium growth; 2) adverse capital market backdrop which could impact asset yields; and 3) regulatory pressures to lower premiums.


Fubon FHC (2881 TT)

Ling Tang started covering this stock from 02-Sep-2011 Price and TP are in local currency

Valuation and risks: Our target price is based on a SOTP valuation. The downside risk is global economic uncertainty.


Date Reco TP

4-Aug-10 BUY 10,700.00

13-Feb-11 BUY 11,100.00

28-Sep-11 BUY 8,300.00

21-Jun-12 BUY 8,500.00

24-Jan-13 BUY 8,900.00

4,887

5,887

6,887

7,887

8,887

9,887

10,887

11,887

Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13

(KRW) Hanwha Life Target Price

Date Reco TP

2-Jul-09 BUY 226,000.00

4-Aug-10 BUY 249,000.00

12-Oct-10 BUY 248,000.00

30-Jan-11 BUY 288,000.00

11-May-11 BUY 291,000.00

21-Jun-12 BUY 260,000.00

151,200

171,200

191,200

211,200

231,200

251,200

271,200

291,200

311,200


(KRW) Samsung F&M Target Price

Date Reco TP

2-Jul-09 HOLD 32.02

8-Feb-10 BUY 33.56

23.32

28.32

33.32

38.32

43.32

48.32


(TWD) Fubon FHC Target Price



Cathay FHC (2882 TT)

Ling Tang started covering this stock from 02-Sep-2011 Price and TP are in local currency

Valuation and risks: Upside risks to our SoTP-based TP come from: better visibility of the investment environment and Cathay's investment yield improving. Downside risk includes government turning more cautious on investment-linked products.


Date Reco TP

2-Jul-09 HOLD 42.39

6-Jan-11 BUY 69.61

1-Sep-11 HOLD 42.00

22.85

32.85

42.85

52.85

62.85

72.85


(TWD) Cathay FHC Target Price



Disclaimers and Disclosures

ANALYST(S) CERTIFICATION

Dominic Chan, CFA, BNP Paribas Securities (Asia) Ltd, +852 2825 1175, [email protected]. Ling Tang, BNP Paribas Securities (Asia) Ltd, +852 2825 1135, [email protected]. The analyst(s) or strategist(s) herein each referred to as analyst(s) named in this report certifies that (i) all views expressed in this report accurately reflect the personal view of the analyst(s) with regard to any and all of the subject securities, companies or issuers mentioned in this report; (ii) no part of the compensation of the analyst(s) was, is, or will be, directly or indirectly, relate to the specific recommendation or views expressed herein; and (iii) is not aware of any other actual or material conflicts of interest concerning any of the subject securities, companies or issuers referenced herein as of the time of this certification.

Analysts mentioned in this disclaimer are employed by a non-US affiliate of BNP Paribas Securities Corp., and are not registered/ qualified pursuant to NYSE and/ or FINRA regulations.

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BNP Paribas analysts prudently perform analysis and create quantitative models and estimates derived from their own review of publicly available data without any assistance from any represented company. BNP Paribas analyst estimates and models reflect the analysts’ current judgment only; they are neither all-inclusive nor can they be guaranteed. The analysts’ analysis and models are subject to change based on various other factors. Valuations are based on internal quantitative models and qualitative interpretation. No representation or warranty, express or implied, is made that such information or analysis is accurate, complete or verified and it should not be relied upon as such.

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IMPORTANT DISCLOSURES The disclosure column in the following table lists the important disclosures applicable to each company that has been rated and/or recommended in this report:

Company Disclosure (as applicable)

AIA 2,5

China Life 5

Ping An Insurance 5

China Pacific Insurance 5

New China Life Insurance 2,5

Samsung Life

Hanwha Life

Samsung F&M

Cathay FHC

Fubon FHC

BNP Paribas represents that: 1. Within the past year, it has managed or co-managed a public offering for this company, for which it received fees. 2. It had an investment banking relationship with this company in the last 12 months. 3. It received compensation for investment banking services from this company in the last 12 months. 4. It beneficially owns 1% or more or the market capitalization of this company. 5. It makes a market in securities in respect of this company. 6. The analyst(s) or an individual who assisted in the preparation of this report (or a member of his/her household) has a financial interest position in

securities issued by this company or derivatives thereof.



7. The analyst (or a member of his/her household) is an officer, director, or advisory board member of this company.

Additional Disclosures Within the next three months, BNP Paribas may receive or seek compensation in connection with an investment banking relationship with one or more of the companies referenced herein.

Target price history, stock price charts, valuation and risk details, and equity rating histories applicable to each company rated in this report is available in our most recently published reports available on our website: http://eqresearch.bnpparibas.com, or you can contact the analyst named on the front of this note or your BNP Paribas representative.

All share prices are as at market close on 5 July 2013 unless otherwise stated.

RECOMMENDATION STRUCTURE

Stock Ratings Stock ratings are based on absolute upside or downside, which we define as (target price* - current price) / current price. BUY (B). The upside is 10% or more. HOLD (H). The upside or downside is less than 10%. REDUCE (R). The downside is 10% or more.

Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on market price and the formal recommendation.

* In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value.

Industry Recommendations Improving (é): The analyst expects the fundamental conditions of the sector to be positive over the next 12 months. Neutral (çè): The analyst expects the fundamental conditions of the sector to be maintained over the next 12 months. Deteriorating (ê): The analyst expects the fundamental conditions of the sector to be negative over the next 12 months.

Country (Strategy) Recommendations Overweight (O). Over the next 12 months, the analyst expects the market to score positively on two or more of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity.

Neutral (N). Over the next 12 months, the analyst expects the market to score positively on one of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity.

Underweight (U). Over the next 12 months, the analyst does not expect the market to score positively on any of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity.

RATING DISTRIBUTION (as at 5 July 2013)

Total BNP Paribas coverage universe 660 Investment Banking Relationship (%)

Buy 352 Buy 8.5

Hold 207 Hold 2.9

Reduce 101 Reduce 3.0

Should you require additional information concerning this report please contact the relevant BNP Paribas research team or the author(s) of this report.

© 2013 BNP Paribas Group

Documents

Asia Insurance sectorpg.jrj.com.cn/acc/Res/CN_RES/INDUS/2013/7/8/cd304c... · 7/8/2013 · China and Korea would account for 80% of Asia’s total non-life premium growth. So far