Hong Kong/China Insurance: Upside risk rises after 1Q26 pressure is released

Overview

This report is Morgan Stanley's 1Q26 marketing material on the Hong Kong/China insurance industry, covering sector share-price performance, valuation comparisons, 1Q26 earnings review, FY25 summary, life and P&C operating trends, solvency, and single-stock views on AIA, Ping An, China Life, PICC P&C, and CPIC. The core conclusion is that insurers' 1Q26 earnings were broadly in line with expectations, life and P&C business quality remained solid, the market pressure from 1Q results has largely been released, and after the market rebound since April, the sector has more upside risk.

Core views

The report maintains an Attractive view on the Asia Pacific insurance industry. On the life insurance side, VNB growth remains the key variable for investors to track, and the China market may become a growth engine; bancassurance VNB for most large Chinese insurers doubled, and monthly agent VNB productivity also generally posted double-digit growth. On the P&C side, 2025 P&C profitability was strong, but some companies still face near-term uncertainty from a high CoR base, a low catastrophe-loss base, and slowing premium growth. At the stock level, Ping An is viewed as having healthy growth and higher quality in 2026; China Life delivered strong 1Q26 VNB growth but long-term P&L volatility remains a concern; PICC P&C has attractive valuation and dividend yield; and CPIC is cheaper but lacks short-term catalysts.

Analysis framework

The report combines sector review and company comparison, first comparing Hong Kong/China insurance share-price performance and valuations, then analyzing 1Q26 and FY25 earnings, life insurance, P&C, investments, and capital conditions, and using indicators such as VNB, APE, P/B, P/EV, dividend yield, and CoR to judge operating quality, valuation appeal, and potential catalysts.

Methodology notes

• Valuation methodsP/B and P/EV Relative Valuation

  Use FY26E P/B, 26E P/EV, and VNB multiples to compare insurers' valuation levels.

  The report notes that AIA trades at about 1.35x 26E P/EV and around 3.7x 12-month VNB; Ping An's FY26E P/B is about 0.90x; China Life's FY26E P/B is about 1.1x; PICC P&C's FY26E P/B is about 0.95x; and CPIC's P/B is about 0.83x.

• Operating QualityVNB and APE Growth Analysis

  Measure life insurance growth quality through new business value and annualized premium equivalent.

  The report emphasizes that VNB growth remains a key indicator investors should track and points out that China Life's 1Q26 VNB grew 76%, while bancassurance VNB at most large Chinese insurers recorded significant growth.

• Underwriting ProfitabilityCoR Analysis

  Use the combined ratio to measure P&C underwriting profitability.

  The report believes PICC P&C has potential for CoR improvement, but in the near term it is still affected by the high 1H25 CoR base, limited catastrophe losses in 2025, and slower 1Q26 premium growth.

• Market and CatalystsEarnings Pressure Release and Market Rebound

  Assess upside risk by combining market sentiment, earnings expectations, and share-price pullbacks.

  The report believes the pressure from 1Q26 earnings has largely been digested by the market, and the rebound since April may create stronger 2Q earnings expectations and valuation re-rating potential.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• AIA

  Covered company in the sector

  Strengths

  Growth is more sustainable and resilient; the China market may help it maintain about 15% VNB growth in FY26 and FY27.

  Weaknesses

  The valuation is above peers, and the 1.35x 26E P/EV and 3.7x 12-month VNB multiple imply a high bar for growth delivery.

  Comparison

  Compared with mainland peers, AIA's valuation premium is more pronounced, but its growth quality and resilience also draw more attention.

  Risks

  Near-term catalysts are limited; if VNB growth or market performance falls short of expectations, the valuation premium may come under pressure.

• Ping An

  Key stock

  Strengths

  Growth in 2026 may be healthy and of higher quality, with CSM balance potentially returning to positive growth; FY26E P/B is about 0.90x and dividend yield is about 5.3%.

  Weaknesses

  The stock corrected after the 4Q25 slowdown, 1Q26 earnings concerns, weak market sentiment, and state-team selling.

  Comparison

  Compared with some peers, the valuation and dividend yield are more attractive, and improving growth quality is the main focus.

  Risks

  Macroeconomic sentiment, life insurance growth delivery, investment-side volatility, and property-related drags may still affect valuation recovery.

• China Life

  Key stock

  Strengths

  1Q26 VNB growth reached 76%, and the earnings pressure appears to have been fully priced in; the market rebound may support stronger 2Q earnings.

  Weaknesses

  FY26E P/B is about 1.1x, higher than major peers; long-term P&L volatility remains a concern for long-term capital.

  Comparison

  VNB growth is significantly ahead of peers, but the valuation is also higher, and investors may be willing to pay a premium in a bull market.

  Risks

  Earnings volatility, market rumors, weaker stock-market performance, and the risk of a high valuation de-rating.

• PICC P&C

  Key stock

  Strengths

  FY26E P/B is about 0.95x and dividend yield is about 5.6%, which is attractive for long-term investors; there is potential for CoR improvement.

  Weaknesses

  The stock has been weak since late 2025 and lacks defensiveness amid market uncertainty.

  Comparison

  The dividend yield and valuation are attractive, but near-term operating uncertainty is higher than that of some life-insurance peers.

  Risks

  High 1H25 CoR base, pressure from limited catastrophe losses in 2025, and slower 1Q26 premium growth.

• CPIC

  Key stock

  Strengths

  1Q26 earnings were better than most peers and net profit grew positively; agent-channel quality continued to improve, the bancassurance channel focused on structure optimization and compliant operations; P/B is about 0.83x.

  Weaknesses

  It has underperformed peers since late 2025 and receives relatively little market attention; the report expects VNB growth to lag peers and says there are few near-term catalysts.

  Comparison

  The valuation is lower than major peers, but growth and catalysts are weaker than those of some competitors.

  Risks

  Concerns on the liability side, concerns on the asset side, VNB growth below peers, and insufficient short-term catalysts.

Key data

• Report date2026-05-18The cover page shows May 18, 2026 10:11 AM GMT.
• Industry viewAttractiveAsia Pacific Industry View Attractive.
• China Life 1Q26 VNB growth76%The chart shows China Life as an unusually high growth outlier versus peers.
• AIA FY26/FY27 VNB growth expectationAbout 15%The report believes the China market may help AIA maintain about 15% VNB growth in FY26 and FY27.
• AIA 1Q VNB growth13%The report says the 1Q growth is consistent with full-year expectations.
• AIA valuation1.35x 26E P/EV; 3.7x 12-month VNBThe report believes the valuation is above peers and FY26E EV growth exceeds 10%.
• Ping An FY26E P/B and dividend yield0.90x; about 5.3%The report believes this valuation and dividend yield are more attractive.
• China Life FY26E P/B1.1xHigher than major peers, but investors may be willing to pay a premium in a bull market.
• PICC P&C FY26E P/B and dividend yield0.95x; about 5.6%The report believes this is attractive for long-term investors.
• CPIC P/B0.83xLower than major peers, but VNB growth may lag peers and near-term catalysts are limited.

Impact & implications

If the market continues to rebound and drives an improvement in 2Q earnings, the valuation re-rating room for the Hong Kong/China insurance sector may expand. On the life side, VNB and channel-quality improvement are the key drivers; on the P&C side, CoR improvement and dividend yield are important supports. However, catalysts differ significantly across companies: cheap valuation does not necessarily mean short-term upside, and investors still need to assess VNB growth, earnings volatility, premium growth, and capital-market performance.

Risks

• A pullback in capital markets may weaken investment income and insurers' earnings leverage.
• If life insurance VNB growth falls short of expectations, valuation re-rating may be affected.
• P&C businesses face pressure from a high CoR base, a low catastrophe-loss base, and slower premium growth.
• Long-term P&L volatility remains an important concern for long-term investors at some companies.
• The research firm discloses investment banking relationships, shareholdings, or other business relationships with multiple covered companies, and investors should treat this report as one input among others rather than the sole basis for decisions.

What to watch

• Whether insurers' 2Q26 earnings benefit from the market rebound.
• Whether life insurance VNB growth, APE growth, and agent and bancassurance channel quality improvements continue.
• PICC P&C's CoR improvement path and changes in auto insurance/new energy vehicle insurance data.
• Whether Ping An's CSM balance can return to positive growth and whether dividend appeal can support the share price.
• Whether China Life's high VNB growth can continue and offset concerns about P&L volatility.
• Whether CPIC develops new near-term catalysts and whether VNB growth improves.