ZhongAn Online’s 1H26 earnings increased 1.3x year over year, with the combined ratio remaining at a healthy 95.5%

Overview

This report reviews ZhongAn Online’s 1H26 results. Morgan Stanley believes the company improved across investment income, underwriting profitability, capital strength, and its banking and technology businesses, resulting in a clear positive earnings surprise. However, gross written premiums still declined slightly, and a recovery in revenue growth in 2H26 will determine whether the improvement in earnings can be sustained further.

Core views

ZhongAn Online’s 1H26 earnings increased 1.3x year over year to RMB1.55 billion, exceeding Morgan Stanley’s forecast, mainly driven by a 1.5x year-over-year increase in investment returns and an 18% increase in underwriting profit. Annualized ROE reached 11.8% in 1H26, significantly above 6.3% in 1H25, indicating that the improvement in earnings during the period came not only from underwriting but was also supported by stronger asset-side returns. The improvement on the investment side was substantial. The annualized net investment yield and reported-basis net investment return on insurance funds increased by 1.9 and 4.5 percentage points, respectively, to 4.0% and 7.8%. The equity asset allocation increased by 4 percentage points to 13%, remaining within management’s comfortable strategic asset allocation range of 8% to 15%. Book value per share increased 5.9% from the end of the first half, while the comprehensive solvency adequacy ratio rose 45 percentage points from the end of the first half to 288%, preserving a strong capital buffer for investment allocation and business operations. Premiums remained the main weakness in the results. Gross written premiums declined 0.6% year over year to RMB16.6 billion in 1H26 because the Consumer Finance business was proactively contracted by 79%, reducing its share of premiums by 13 percentage points to only 3%; the report believes the corresponding risks have been brought under control. Other businesses maintained growth, with Digital Lifestyle up 25%, Health up 7%, and Auto up 4%. Due to differences in revenue recognition timing, insurance revenue increased 12.9% year over year, a healthier performance than gross written premiums. Management expects the auto insurance business to recover to some extent in 2H26, while Morgan Stanley identifies future revenue growth as the most important metric to track in 2H26. Underwriting quality remained stable. The combined ratio improved by 0.1 percentage points year over year to 95.5%, slightly better than Morgan Stanley’s forecast. The expense ratio declined 2.3 percentage points to 38.6%, offsetting a 2.2-percentage-point increase in the loss ratio to 56.9%. All major business lines remained profitable on an underwriting basis, indicating that product mix optimization and expense control continued to be effective, although the increase in the loss ratio also means the combined ratio may face pressure going forward. Non-insurance businesses also contributed to the improvement. ZA Bank’s profit increased 44% year over year to HK$71 million, while the Tech business generated a profit of RMB17 million, reversing a loss. The report also notes that artificial intelligence has been deeply integrated into the company’s operations. Model token consumption exceeded 34 trillion in 1H26, compared with 3 trillion for full-year 2025, demonstrating that the scale of its application expanded significantly within six months, although the report did not separately quantify AI’s financial contribution to costs or revenue. Morgan Stanley’s ModelWare table shows earnings per share of RMB0.70, RMB0.87, RMB0.75, and RMB0.84 for 2025 through 2028, respectively, compared with Refinitiv consensus estimates of RMB0.72, RMB0.88, RMB0.97, and RMB1.12. ModelWare net profit for the same period is RMB1.102 billion, RMB1.466 billion, RMB1.259 billion, and RMB1.410 billion, respectively. The corresponding P/E multiples are 20.7x, 10.8x, 12.5x, and 11.2x; P/B multiples are 1.0x, 0.6x, 0.6x, and 0.5x; ROE is 5.3%, 5.8%, 4.7%, and 5.0%; and dividend yields are all 0.0%. These full-year model metrics and 1H26 annualized ROE cover different statistical periods and are calculated on different bases. On valuation, the HK$14.50 target price is the result of Morgan Stanley’s discounted cash flow analysis under its base case, using a 15.1% discount rate and a 3% perpetual growth rate, corresponding to an implied 2026 forecast P/B multiple of 0.7x. Relative to the closing price of HK$10.92 on August 25, 2026, the target price implies 33% upside. The report assigns the stock an Overweight rating and maintains an Attractive view on the Hong Kong and China insurance industry.

Analysis framework

The report first breaks down 1H26 earnings into the two main drivers of investment returns and underwriting profit, and assesses earnings and capital conditions through ROE, investment yields, equity allocation, book value per share, and solvency. It then analyzes premium changes across Consumer Finance, Digital Lifestyle, Health, and Auto, before explaining the combined ratio through the expense ratio and loss ratio. The report also reviews progress at ZA Bank, the Tech business, and in artificial intelligence applications. Finally, it derives a target price by combining ModelWare forecasts with a discounted cash flow methodology and presents the valuation using the implied P/B multiple.

Methodology notes

• Valuation MethodDCF Discounted Cash Flow

  Discounted cash flow valuation

  The report discounts future cash flows to present value, calculating the base-case value using a 15.1% discount rate and a 3% perpetual growth rate, and derives a target price of HK$14.50 accordingly.

• Valuation MethodPB valuation

  Implied forward P/B multiple

  The report translates the target price derived from discounted cash flow analysis into a 2026 forecast P/B multiple of 0.7x to illustrate the target valuation relative to the company’s book value.

• Company Fundamentals and Financial FrameworkEarnings Quality Analysis

  Breakdown of earnings sources between investment income and underwriting profit

  The report separately examines investment returns, underwriting profit, the combined ratio, ROE, and profits from the banking and technology businesses to determine which operating and asset-side factors drove earnings growth during the period.

Asset mapping & comparison

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

• ZhongAn Online P&C Insurance Co., Ltd. (06060.HK)

  The report believes the company benefits from growth in investment returns, improved underwriting profit, product mix optimization, and stronger banking and technology businesses, and assigns it an Overweight rating.

  Strengths

  1H26 earnings exceeded expectations, annualized ROE rose to 11.8%, the combined ratio remained at 95.5%, the solvency adequacy ratio reached 288%, and profitability improved at ZA Bank and the Tech business.

  Weaknesses

  Gross written premiums declined 0.6% year over year, the Consumer Finance business contracted by 79%, the loss ratio increased by 2.2 percentage points, and a recovery in revenue growth remains to be demonstrated.

  Comparison

  Both 1H26 earnings and the combined ratio were better than Morgan Stanley’s forecasts; the HK$14.50 target price is 33% above the HK$10.92 share price stated in the report.

  Risks

  Deterioration in the combined ratio, declines in investment yields and premium growth, and potential selling pressure from major shareholders.

Key data

• 1H26 EarningsRMB1.55 billion, up 1.3x year over yearDriven by a 1.5x year-over-year increase in investment returns and an 18% increase in underwriting profit, exceeding Morgan Stanley’s forecast
• 1H26 Annualized ROE11.8%6.3% in 1H25
• Gross Written PremiumsRMB16.6 billion, down 0.6% year over yearThe proactive contraction in Consumer Finance offset growth in other businesses
• Business Growth RatesConsumer Finance -79%; Digital Lifestyle +25%; Health +7%; Auto +4%Consumer Finance’s share declined by 13 percentage points to 3%, and management expects some recovery in auto insurance in 2H26
• Insurance RevenueUp 12.9% year over yearThe difference from gross written premium growth stems from the timing of revenue recognition
• Combined Ratio95.5%Improved by 0.1 percentage points year over year, slightly better than Morgan Stanley’s forecast
• Expense Ratio and Loss RatioExpense ratio 38.6%; loss ratio 56.9%The expense ratio declined by 2.3 percentage points, while the loss ratio increased by 2.2 percentage points
• Net Investment Return on Insurance FundsAnnualized 4.0%; reported basis 7.8%Increased by 1.9 and 4.5 percentage points, respectively
• Equity Asset Allocation13%Increased by 4 percentage points; management considers 8% to 15% a comfortable strategic asset allocation range
• Book Value per ShareIncreased 5.9% from the end of the first halfReflects continued growth in net assets during the six-month period
• Comprehensive Solvency Adequacy Ratio288%Up 45 percentage points from the end of the first half
• ZA Bank and Tech Business ProfitsZA Bank profit of HK$71 million; Tech business profit of RMB17 millionZA Bank increased 44% year over year, while the Tech business turned profitable
• Artificial Intelligence Token ConsumptionMore than 34 trillion in 1H263 trillion for full-year 2025
• ModelWare Earnings per Share2025 to 2028: RMB0.70, RMB0.87, RMB0.75, RMB0.84Refinitiv consensus estimates for the same period are RMB0.72, RMB0.88, RMB0.97, and RMB1.12
• ModelWare Net Profit2025 to 2028: RMB1.102 billion, RMB1.466 billion, RMB1.259 billion, RMB1.410 billionFull-year figures listed in the report’s model table
• Valuation Multiples2025 to 2028 P/E of 20.7x, 10.8x, 12.5x, and 11.2x; P/B of 1.0x, 0.6x, 0.6x, and 0.5xROE for the same period is 5.3%, 5.8%, 4.7%, and 5.0%, with dividend yields of 0.0% throughout
• Rating and Target PriceOverweight; HK$14.5033% upside relative to the HK$10.92 closing price stated in the report
• Market Trading Data52-week range HK$20.86–8.83; diluted shares outstanding 1.685 billion; market capitalization US$2.347 billion; average daily trading value US$24 millionAs stated in the report as of August 25, 2026

Impact & implications

The report believes that stronger investment income, sustained underwriting profitability, and improvements in the banking and technology businesses collectively increased 1H26 earnings and capital returns, while robust solvency also provided a buffer. However, the earnings improvement has not yet translated into growth in gross written premiums, and the sharp contraction in Consumer Finance continues to weigh on revenue. Therefore, the key issue for 2H26 is whether auto insurance and overall premiums can recover while the current combined ratio and investment yields are maintained.

Risks

• A deterioration in the combined ratio would weaken underwriting profitability and the overall earnings improvement trend.
• A decline in investment yields could weaken the main driver of earnings growth during the period.
• Persistently weak premium growth would constrain the revenue recovery.
• Potential share sales by major shareholders could put pressure on the share price.
• If the combined ratio and investment yields improve further, actual performance may exceed the report’s base case.
• If premium growth recovers and the technology and banking businesses remain profitable, earnings may see additional upside.
• Further improvement in ROE or share purchases by management are also identified in the report as upside scenario factors.

What to watch

• Track whether gross written premium and overall revenue growth recover in 2H26, which the report explicitly identifies as a key metric to watch.
• Monitor whether the auto insurance recovery expected by management materializes in 2H26, while also watching changes in the combined ratio and investment yields.