Goldman Sachs on China Insurers’ Q1 Earnings: Net Profits Generally Beat Expectations but Quality Is Questionable; High NBV Growth Stands Out

Overview

This report reviews the first‑quarter 2026 results of China’s three major listed insurers: China Life, New China Life, and China Taiping. Overall, net profits at all three firms exceeded Goldman Sachs’ previous estimates, but this “better‑than‑expected” outcome was largely due to one‑time tax adjustments and other potentially unsustainable factors, such as the sale of legacy high‑yield bonds. With strong equity market performance since April, investors will now focus on second‑quarter profit growth and the resilience of sales and new business value (NBV).

Core views

First, on profitability, while net profit figures appear strong, Goldman Sachs judges their quality to be subpar. China Life and New China Life benefited from reductions in effective tax rates, and pre‑tax profit declines exceeded changes in reported earnings. Specifically, China Life saw robust insurance service results in Q1—a historically volatile metric—while New China Life recognized gains from selling off high‑yield bonds, though these did not affect its book value. Meanwhile, pre‑tax profits declined across most covered companies, reflecting lackluster investment performance; for example, China Life’s total investment return fell 0.5 percentage points year‑over‑year to 2.2%. Second, on new business value (NBV), the sector has shown a robust recovery. China Life’s first‑year premiums (FYP) rose 19% year‑over‑year, and New China Life’s FYP grew 4%—with agency channel growth at 21%. Both companies’ NBV growth outpaced FYP increases, indicating significant margin expansion. This suggests an ongoing shift of deposits into life insurance products, which should support long‑term asset growth and balance sheet expansion. Chart data show China Life’s NBV surged 76% year‑over‑year in Q1 2026, far ahead of Ping An (21%) and Taiping (10%); New China Life’s NBV also expanded by 25%. Third, on capital position, core solvency ratios at all three firms declined modestly. This reflects weak equity investment returns and the continued drop in the solvency discount rate (the 750‑day average government bond yield). For instance, China Life reclassified held‑to‑maturity (HTM) bonds as available‑for‑sale (AFS), boosting its core solvency ratio by 28 percentage points quarter‑over‑quarter to 157%; however, on a comparable basis, it remains about 4 percentage points below expectations. Finally, insurers have adopted a more cautious approach to investments. While China Life views equities as attractive amid current long‑end rate declines, all firms emphasize managing P&L volatility by adjusting equity allocations between FVTPL (fair value through profit or loss) and FVOCl (fair value through other comprehensive income). This underscores our view that future equity allocations will be more restrained than in 2025.

Analysis framework

Goldman Sachs employed a “separate signal from noise” analytical framework to interpret these results. Analysts did not dwell on superficial year‑over‑year or quarter‑over‑quarter net profit growth but instead dissected the composition of earnings. They paid particular attention to how one‑time items—such as tax adjustments and bond sale gains—distorted the financial statements, leading to the central conclusion of “low earnings quality.” At the same time, the report juxtaposed short‑term financial data with long‑term drivers—NBV, premium mix, and solvency—using the divergence between faster NBV growth and slower FYP increases to infer improved industry margins and optimized liability costs. This approach helps investors cut through accounting noise and discern the true trajectory of insurers’ fundamental improvements.

Methodology notes

• Valuation MethodROA-based valuation

  Return on Assets–based Valuation

  When setting target prices for China Life and New China Life, the report employed ROA‑based pricing. This method is commonly used in heavy‑asset or capital‑intensive financial sectors, projecting future ROA levels and applying a reasonable multiple to derive intrinsic equity value rather than relying solely on PE multiples.

• Valuation MethodSOTP Segment Valuation

  Sum-of-the-Parts Valuation

  For China Taiping, the report applied SOTP, assigning different valuation multiples (P/B) to its life insurance (Taiping Life), property & casualty (Taiping P&C), and reinsurance businesses. This is because capital returns (RoE) and risk profiles vary widely across insurance subsectors, and a uniform valuation would distort the picture.

• Industry Analysis FrameworkVolume-price decomposition

  New Business Value (NBV) Volume‑Price Breakdown

  When analyzing NBV growth, the report disaggregated it into “volume” (first‑year premium volume) and “price” (margin/NBV margin expansion). By noting that NBV growth outpaced FYP increases, analysts confirmed that this was driven by price—improved single‑policy margins—a key dimension for assessing high‑quality development in life insurers.

Asset mapping & comparison

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

• China Life (2628.HK / 601628.SS)

  Bull case: NBV growth of 76% and strong premium expansion; Bear case: declining investment returns and strained core solvency.

  Strengths

  NBV growth significantly outpaces peers, and rising recurring premium share drives margin expansion.

  Weaknesses

  Net profit down 32% year‑over‑year, pre‑tax profit plummeting, and lackluster investment performance.

  Comparison

  NBV growth (76%) far exceeds Ping An (21%) and Taiping (10%), but net profit lags behind Ping An.

  Risks

  Further softening of the investment market could constrain dividend capacity; long‑end rates falling below 2%; sluggish sales in lower‑tier markets.

• New China Life (1336.HK / 601336.SS)

  Bear/Neutral case: Despite 25% NBV growth and sensitivity to A‑share rallies, Goldman Sachs maintains a ‘Sell’ rating, implying downside risk or relative underperformance.

  Strengths

  High beta exposure to A‑share rallies; cost control could enhance long‑term ROE.

  Weaknesses

  Goldman Sachs holds a Sell rating, with a target price suggesting substantial downside; profits from high‑yield bond sales are unsustainable.

  Comparison

  NBV growth (25%) surpasses Taiping but trails China Life; agency channel growth is robust at 21%.

  Risks

  If the A‑share rally stalls, investment elasticity will weaken; dividends may fall short of aggressive expectations.

• China Taiping (0966.HK)

  Neutral case: Divergent performance between life and property & casualty segments; overall valuation based on sum‑of‑parts.

  Strengths

  Life insurance core solvency remains within a reasonable range; improving capital conditions could boost dividends.

  Weaknesses

  Property & casualty combined ratio rose 1.3 percentage points year‑over‑year, and underwriting losses dragged overall net profit down 17%.

  Comparison

  Compared with pure life insurers, Taiping is more susceptible to cyclical fluctuations in the property & casualty segment.

  Risks

  Underwhelming investment results weigh on profits; inability to sustain new policy sales leads to NBV decline; dividend payout constrained by solvency.

Key data

• China Life Q1 2026 NBV YoY Growth76%Far above expectations, driven by higher recurring premium share and reduced liability costs
• China Life Q1 2026 First‑Year Premium (FYP) YoY Growth19%Primarily fueled by a 41% increase in recurring premiums
• New China Life Q1 2026 NBV YoY Growth25%Achieved on a high base, supported by 4% growth in new policy sales and a 3‑percentage‑point margin expansion
• New China Life Q1 2026 First‑Year Premium (FYP) YoY Growth4%With agency channel growth at 21%
• China Life Total Investment Return2.2%Down 0.5 percentage points year‑over‑year, reflecting investment headwinds
• China Life Core Solvency Ratio157%Up 28 percentage points quarter‑over‑quarter (after bond reclassification), but slightly below comparable expectations
• China Taiping Life Core Solvency Ratio134%Down 9 percentage points quarter‑over‑quarter

Impact & implications

For investors, this report highlights structural opportunities in China’s insurance sector. While near‑term net profits are pressured by equity market volatility and declining investment yields, the robust recovery on the liability side—driven by strong NBV growth—is a more reliable long‑term tailwind. However, given the presence of one‑time gains, the market may react tepidly to Q1 results and instead closely monitor second‑quarter profit release in a more normalized investment environment. Moreover, insurers’ prudent stance on equity allocation suggests that reliance on large‑scale stock purchases to boost investment returns may wane, and valuation recovery will increasingly hinge on organic NBV growth and steady balance sheet expansion.

Risks

• Further weakening of the investment market, lowering solvency ratios and limiting dividend capacity
• Ten‑year government bond yields falling further below 2%
• Sluggish growth in insurance sales in lower‑tier markets (especially for China Life, which dominates these segments)
• Agency productivity gains lagging behind peers
• Rising combined ratios and widening underwriting losses in the property & casualty segment (particularly for China Taiping)

What to watch

• Second‑quarter 2026 profit performance (true earnings power after stripping out one‑time effects)
• Sustainability of new business value (NBV) growth
• Trends in long‑end interest rates (ten‑year government bond yields)
• Insurers’ actual practices in rebalancing equity allocations between FVTPL and FVOCl
• A‑share market performance and its impact on insurers’ investment portfolios