Hong Kong/China insurance 1H26 earnings are expected to be strong, but a high 3Q base poses near-term pressure

Overview

This report is Morgan Stanley's 1H26 earnings preview for the Hong Kong/China insurance sector. It concludes that insurers' 1H26 earnings, net assets and VNB should remain broadly resilient, benefiting from equity-market gains, improved business quality and continued insurance demand; however, the sector must absorb near-term valuation pressure from a high 3Q base, bancassurance regulatory disruptions and potential selling by major shareholders.

Core views

The key views are: first, 1H26 earnings should be strong, with China Life's earnings potentially increasing approximately 2.2x year on year, China Taiping Insurance Holdings' earnings rising approximately 91%, Ping An's net profit growing approximately 29% and OPAT approximately 8%; second, 1H26 VNB should remain healthy, although 2Q and 3Q growth may slow marginally due to a high base and bancassurance regulation; third, P&C combined ratios should continue to improve, with low catastrophe losses and expense discipline supporting underwriting quality; fourth, the industry's medium- to long-term logic remains intact, including improving profitability, better business quality and sustained demand, but near-term catalysts for valuation re-rating are limited.

Analysis framework

The report compares major insurers using 1H26 forecasts for earnings, VNB, EV, BV, DPS and P&C combined ratios, and provides rankings and target prices based on fundamental forecast revisions, valuation methodology updates, shareholder-selling scenario discounts and a risk-reward framework.

Methodology notes

• Valuation methodsThree-stage dividend discount model

  DDM

  The base case for H-share insurers primarily uses a three-stage dividend discount model, valuing companies based on dividend payout ratios, dividend growth rates, cost of capital and terminal growth rates across different stages.

• Valuation methodsP/EV, P/BV and SOTP

  P/EV, P/BV, SOTP

  P/EV is used for A-share life insurers, P/BV for property and casualty insurers, and SOTP for diversified financial groups such as Ping An, CPIC and PICC Group.

• scenario_analysisBull/Base/Bear cases

  Bull/Base/Bear case

  The bull case assumes improving equity markets and interest-rate conditions, the bear case assumes low interest rates and pressure on the value of in-force life insurance business, while the base case reflects stable rates, markets and fundamental recovery.

• technical_adjustmentTemporary shareholder-selling discount

  shareholder overhang discount

  The report applies temporary valuation discounts for potential selling pressure from major shareholders: generally 5% for A shares and 3% for H shares, with a higher discount for China Life A due to its lower free float.

Asset mapping & comparison

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

• Ping An Insurance Group Co of China Ltd 2318.HK / 601318.SS

  Top Pick; Overweight

  Strengths

  De-risking is entering its later stages, OPAT trends are resilient, core life insurance growth is healthy, and it has competitive advantages in integrated finance, healthcare and retirement, and AI applications, with a dividend yield of approximately 6%.

  Weaknesses

  The asset management business may still be a short-term drag, while quarterly VNB growth may face greater scrutiny.

  Comparison

  Compared with most life insurance peers, it has an easier 3Q base and more resilient OPAT, and is expected to demonstrate greater resilience.

  Risks

  Equity-market and interest-rate volatility, low interest rates or asset/real-estate risks, shareholder-selling pressure, and capital levels and DPS below expectations.

• China Life Insurance Co Ltd 2628.HK / 601628.SH

  Beneficiary of strong 1H26 earnings and VNB growth

  Strengths

  1H26 earnings are expected to rise approximately 2.2x year on year, with VNB growth of approximately 32%, the strongest among peers.

  Weaknesses

  A high 3Q base may create near-term growth resistance, while the valuation discount assumption for China Life A is relatively high.

  Comparison

  Growth leads in 1H26, but the stock is more affected in the near term by the high base and free-float ratio.

  Risks

  Slower 3Q growth, shareholder-selling expectations and an equity-market correction.

• PICC P&C Company Ltd 2328.HK

  Defensive beneficiary

  Strengths

  The 1H26 combined ratio is expected to be approximately 94.5%, annualized ROE is expected to exceed 20%, valuation is approximately 1.0x 2026E P/B and the dividend yield is above 5%.

  Weaknesses

  1H26 premium growth is expected to be only approximately 2%-7%, with subdued auto premiums and slower government-related business.

  Comparison

  Compared with life insurers, it has an easier 3Q base and stronger defensive characteristics.

  Risks

  Higher catastrophe losses in 3Q and failure to meet the full-year combined-ratio target.

• China Pacific Insurance Group Co Ltd 2601.HK / 601601.SS

  H-share target price HK$37.70; A shares downgraded to Equal-weight

  Strengths

  Valuation is below 0.8x 2026E P/B, with benefits from an equity-market rebound and sector rotation.

  Weaknesses

  1H26 earnings and VNB performance may lag major peers.

  Comparison

  Growth momentum is weaker than that of China Life, Ping An and some other peers.

  Risks

  Relative underperformance versus peers, slower VNB growth and shareholder-selling pressure.

• PICC Group 1339.HK / 601319.SH

  Low-valuation insurance group

  Strengths

  With higher equity exposure, earnings growth may exceed that of PICC P&C; valuation is approximately 0.6x 2026E P/B.

  Weaknesses

  P&C accounts for a relatively high proportion of the business mix, and the terminal growth assumption is low.

  Comparison

  Its lower valuation provides upside sensitivity to equity-market performance and fair-value gains related to the CXMT listing.

  Risks

  Equity-market volatility, P&C underwriting risks and a weaker-than-expected valuation recovery.

• China Taiping Insurance Holdings Co Ltd O966.HK

  Stock with strong 1H26 earnings growth

  Strengths

  1H26 earnings growth is expected to exceed that of most peers, with valuation at approximately 0.7x 2026E P/B.

  Weaknesses

  VNB growth may be lower than that of some core peers.

  Comparison

  Strong earnings may attract greater market attention before the end of August.

  Risks

  VNB growth below expectations and an equity-market decline.

• New China Life Insurance Company Ltd 1336.HK / 601336.SH

  Healthy growth but less attractive valuation

  Strengths

  1H26 earnings and VNB growth are expected to remain healthy.

  Weaknesses

  Valuation is not sufficiently attractive, and the 3Q26 base is relatively high.

  Comparison

  Compared with other life insurers, its near-term risk-reward profile is not compelling.

  Risks

  Pressure from a high 3Q base, valuation correction and equity-market volatility.

Key data

• China Life 1H26E earnings growthApproximately 2.2x year on yearThe report expects China Life to lead peers in earnings and VNB growth.
• China Life 1H26E VNB growth32%Expected to lead among major insurers.
• AIA China 1H26E VNB growth21%Listed by the report as one of the companies with strong VNB growth.
• Ping An 1H26E earnings growthNet profit approximately +29%, OPAT approximately +8%Valued at approximately 0.8x 2026E P/B, with a dividend yield of approximately 6%.
• PICC P&C 1H26E combined ratioApproximately 94.5%Improvement is driven by low catastrophe losses and expense discipline, with annualized ROE expected to exceed 20%.
• FY26E earnings forecast adjustmentsRaised by 12%-68% for most insurersMainly reflects gains in the equity market during 1H26.
• FY26E VNB forecast adjustmentsCut by 1%-5% for most insurersReflects a slowdown in the bancassurance channel amid tighter regulation.
• Valuation discount assumptionsGenerally 5% for A shares, 3% for H shares, and 6% for China Life AUsed to reflect the technical impact of potential selling pressure from national-team holdings.

Impact & implications

The investment implication is that medium-term fundamentals still support sector exposure, but investors should be more selective in the near term: strong earnings expectations may support performance in August, while September and October are likely to be more defensive amid a high 3Q base. Ping An is the Top Pick due to its valuation, dividend yield, de-risking progress and relative 3Q resilience; PICC P&C offers defensive characteristics; CPIC is inexpensive but its growth may lag peers.

Risks

• A high 3Q26 base causes a temporary slowdown in earnings and VNB growth.
• Continued selling by national-team or major shareholders creates technical valuation and market-sentiment pressure.
• Equity-market volatility affects investment income, net assets and fair-value changes.
• A low interest-rate environment pressures life insurance spreads and embedded-value assumptions.
• Tighter regulation of the bancassurance channel slows VNB growth and new-business sales.
• P&C operations face the risk of higher catastrophe losses and a deterioration in the combined ratio.

What to watch

• The official 1H26 earnings release dates and whether earnings, OPAT and VNB meet expectations.
• The resilience of each company's VNB and earnings growth in 3Q26 against a high base.
• Changes in national-team holdings and whether market expectations of selling pressure ease.
• The impact of A-share and STAR-market performance on investment income and net assets.
• The impact of bancassurance regulatory policies on channel sales, FYP and margins.
• PICC P&C's execution against its full-year combined-ratio target and 3Q catastrophe losses.