21 July 2017 Life Insurance China Insurance Sector Banking / Finance Life Insurance Industry Update Asia China Hong Kong Industry China Insurance Sector Date 21 July 2017 Deutsche Bank Markets Research Jun premium Robust growth for both Life and P PICC P PICC P target price of HK$32.3/share) China Life A (Hold; target price of Rmb29.4/share) We value China Lifes business at Rmb831bn based on appraisal value. We calculate our appraisal value as the sum of the following: Embedded value, which consists of adjusted net worth (ANW) of Rmb359bn and in-force value of Rmb371bn. The value of future new business, which we estimate by multiplying our 2017E VNB forecast by an NB multiple of 6.5x. Both our EV and value of future new business have been adjusted for a lower long-term investment return assumption of 4.0% vs. 5.0% currently. Figure 25: China Life valuation summary Rmb bnHK$Rmb 2017ETotalPer sharePer share Adjusted net worth35913.912.7 Value of in-force37114.413.1 EV73028.425.8 A Ad dj j. . EV V fo or r lo owwe er r LT T in nv v r re et tu ur rn n - (i i) ) 2 22 2. .8 82 20 0. .8 8 VNB672.62.4 Adj. VNB381.51.3 NB multiple (x)6.57.16.5 V Va al lu ue e of f fu ut tu ur re e NB B - (i ii i) )9 9. .5 58 8. .7 7 A Ap pp pr ra ai is sa al l Va al lu ue e: : (i i) ) + (i ii i) )3 32 2. .3 32 29 9. .4 4 Source: Deutsche Bank estimates Ping An H (Buy; target price of HK$74.0/share) Ping An A (Buy; target price of Rmb67.3/share) We value Ping An based on a sum-of-the-parts valuation and a 10% holding company discount. 76% of our valuation for Ping An comes from its life insurance business, which we value at Rmb1,042bn (adjusted for a lower long-term investment return assumption). We value Ping Ans P 2.4x P/EV (Life); 12x NBM P target price of HK$44.0/share) CPIC A (Buy; target price of Rmb40.0/share) We value CPIC at Rmb362.7bn, which we base on a sum-of-the-parts valuation. 77% of our valuation for CPIC comes from its life insurance business, which we value at Rmb280.8bn, with an adjustment for a lower long-term investment return assumption. We value CPICs P target price of HK$67.7/share) NCI A (Hold; target price of Rmb61.6/share) We value NCIs life business at Rmb192.2bn based on appraisal value. We calculate our appraisal value as the sum of the following: Embedded value, which consists of adjusted net worth (ANW) of Rmb85.7bn and in-force value of Rmb61.3bn. The value of future new business, which we estimate by multiplying our 2017 VNB forecast by an NB multiple of 8.0x. Both our EV and the value of future new business have been adjusted for a lower long-term investment return assumption of 4% vs. 5% currently. Deutsche Bank AG/Hong Kong Page 13 21 July 2017 Life Insurance China Insurance Sector Figure 28: NCI valuation summary Rmb bnHK$Rmb 2017ETotalPer sharePer share Adjusted net worth85.730.227.5 Value of in-force61.321.619.6 EV146.951.747.1 A Ad dj j. . EV V - (i i) )1 12 22 2. .5 54 43 3. .1 13 39 9. .3 3 VNB13.74.84.4 Adj. VNB8.73.12.8 NB multiple (x)8.08.08.0 V Va al lu ue e of f fu ut tu ur re e NB B - (i ii i) )6 69 9. .7 72 24 4. .6 62 22 2. .4 4 A Ap pp pr ra ai is sa al l Va al lu ue e: : (i i) ) + (i ii i) )1 19 92 2. .2 26 67 7. .7 76 61 1. .6 6 - Implied P/EV (x) 1. .6 61 1. .6 6 Source: Deutsche Bank estimates Ch Taiping (Buy; target price of HK$36.9/share) We value Taiping at HK$133bn, which we base on a sum-of-the-parts valuation and a 10% discount for its diverse operations. 75% of our valuation comes from its life insurance business, which we value at HK$111bn (HK$30.8/share) after an adjustment for a lower long-term investment return assumption (4% vs. 5% currently). We value Taipings P target price of HK$4.2/share) We reinstate our coverage on PICC Group with a Hold rating and target price of HK$4.2/share. We use a sum-of-parts approach to value the company, and our key assumptions and basis are as follows: Life: We apply a zero 2017E NB multiple to refl ect its relatively poor quality, which implies a target 2017E Life P/EV of 1.0x. Health: We assign a nil valuation to the Health segment since it is still loss-making and capital-consuming. We do not expect to see any value creation in the near term. Page 14 Deutsche Bank AG/Hong Kong 21 July 2017 Life Insurance China Insurance Sector P target price of HK$17.1/share) Our target price of HK$17.1/share implies a target 2017E P/B of 1.7x and P/E of 10.6x. This is based on a sum-of-the-parts valuation and is equal to the sum of: P target price of HK$2.1/share) We value China Re at Rmb78.8bn or HK$2.1 per share on 2017E, based on a sum- of-the-parts valuation. We value P ( ii) the value of currencies may be aff ected by numerous market factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could aff ect the value of the