FY25 confirms a turning point in China insurance fundamentals; post-results weakness offers a buying opportunity
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FY25 confirms a turning point in China insurance fundamentals; post-results weakness offers a buying opportunity
JPMorgan believes China insurers' FY25 earnings, NBV, and dividends improved in tandem; although target prices were cut due to higher equity exposure, the firm still prefers life insurance and high-quality leaders.
- FY25 industry average net profit grew 24% y/y, NBV grew about 45% y/y, and average DPS rose 17% y/y, indicating that the improvement in fundamentals is more sustainable.
- Life insurance sales quality improved, with 2026 NBV at major life insurers expected to grow 21% y/y; over the next three years, China Life's and Ping An's life NBV CAGR are expected to be 17% and 29%, respectively.
- The ratio of equity assets to shareholders' equity rose from 1.1x at end-2024 to 1.5x at end-2025; a 10% move in equity markets could drive a 46% swing in FY26E consensus earnings.
- Average H-/A-share Dec-26 target prices were cut by 13%/18%, reflecting a higher cost of equity and a narrower A-H premium, but the report still sees the pullback as an opportunity to accumulate high-quality names.
Report interpretation
Overview
This report is JPMorgan's comprehensive commentary on the China insurance sector after FY25 results. The core conclusion is that the industry fundamentals have seen a decisive improvement: profit growth, life-insurance new business value, cash flow, and dividends have all strengthened, supporting a gradual shift away from a balance-sheet discount framework toward earnings, dividends, and embedded-value valuation logic. The report also warns that insurers' equity-investment exposure has risen materially, which will increase near-term earnings and capital volatility, so target prices are cut while the constructive view is maintained.
Core views
The report argues that life insurance is better than property & casualty insurance, and that H-shares are more attractive than A-shares on valuation and dividends. On the life-insurance side, lower liability funding costs, a higher mix of participating policies, a rebound in CSM balances, and NBV growth together support core earnings and dividend growth. On the P&C side, the 2025 combined ratio is already at one of the best levels in recent years, leaving limited room for further underwriting improvement, while reinvestment returns and equity volatility will cap earnings upside. In the near term, if 1Q26 earnings are weak because of a softer equity market, that may instead create an opportunity to buy high-quality names such as China Life-H and Ping An-A.
Analysis framework
The report is organized around seven fundamental questions: whether life-insurance liability funding costs are falling, whether CSM reserve quality is improving, whether core earnings can support dividends, whether life-insurance sales quality has truly improved, where the property & casualty underwriting cycle stands, whether solvency capital is sufficient, and what the risk-reward looks like after the rise in equity exposure. On valuation, the report compares P/E, dividend yield, P/B, and P/EV, and concludes that the market is likely to focus on earnings and shareholder returns in the near term, while long-term life-insurance leaders may benefit as the P/EV valuation anchor returns.
Methodology notes
Insurance valuation anchors switch with macro and capital risk
When macro risks are high, the market prefers P/B to reflect capital pressure; after fundamentals improve, valuation is more likely to shift toward P/E and dividend yield; if asset allocation and interest-rate assumptions improve further, life insurers may gradually move toward P/EV valuation.
EV unwind plus operating EV variance as core earnings proxies
The report uses embedded-value release and operating EV variance to measure earnings quality that is closer to cash and distributable earnings, avoiding reliance solely on accounting profits that are heavily affected by investment valuation under IFRS 17/9.
Use new business value margin, first-year premiums, participating insurance, and protection riders to judge sales quality
A higher NBV/FYP ratio does not necessarily mean a structural expansion in margins, so the report also looks at lower bancassurance commissions, lower guaranteed rates, a lower CSM release rate, and a higher share of long-duration products to judge sales quality.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- China Life-HTop H-share pick, Overweight
- Strengths
- Steady CSM, NBV, and DPS growth prospects, with relatively high re-rating potential.
- Weaknesses
- Near-term earnings remain sensitive to equity-market volatility.
- Comparison
- The top pick among H-share insurers, and may benefit from a return to P/EV as the valuation anchor.
- Risks
- Equity-market declines, lack of dividend transparency, and interest-rate and capital volatility.
- Ping An-ATop A-share pick, Overweight
- Strengths
- Leading core earnings momentum versus peers, relatively low cost of life-insurance liabilities, and a relatively active dividend policy.
- Weaknesses
- The inflection point where new CSM exceeds releases is expected later than for some peers.
- Comparison
- The top pick among A-share insurers, and together with China Life forms the report's favored quality pair.
- Risks
- Rising equity exposure, 1Q26 earnings pressure, and macro and interest-rate volatility.
- CPIC-H/CPIC-AHigh on the preference list, Overweight
- Strengths
- Fundamentals continue to improve steadily, and medium-term dividends provide support.
- Weaknesses
- Compared with the top picks, the report assigns it a lower priority.
- Comparison
- The H-share ranks behind China Life-H and Ping An-H, and the A-share ranks behind Ping An-A.
- Risks
- Underwriting cycle, equity-market volatility, and interest-rate swings.
- PICC P&CRelatively cautious
- Strengths
- Strong underwriting performance in 2025, with a combined ratio in a favorable range.
- Weaknesses
- Valuation is close to the historical average; limited room for further underwriting improvement and higher reinvestment risk.
- Comparison
- The report prefers life insurance over property & casualty insurance and sees limited upside for EPS revisions at PICC P&C.
- Risks
- Lower investment returns, volatility in equity assets, and pressure on margins from agricultural insurance and non-auto lines.
Key data
- FY25 industry average net profit growth+24% oyaMainly driven by investment income.
- FY25 NBV growth+45% oyaImproved life-insurance sales momentum and product mix.
- FY25 average DPS growth+17% oyaImproved cash generation and dividends support the investment case.
- 2026E major life insurers NBV growth forecast+21% oyaSupported by deeper bancassurance partnerships, better agent efficiency, and lower guaranteed rates.
- Equity exposure1.5x book valueAs of December 2025, up from 1.1x at December 2024.
- Equity market sensitivityA 10% move in equity markets could lead to a 46% swing in FY26E consensus earningsReflects short-term earnings volatility risk.
- H-/A-share FY26E valuationH-shares 6x P/E, 5.0% dividend yield; A-shares 8x P/E, 3.6% dividend yieldEquivalent to FY26E P/B of about 0.8x/1.2x.
- Target price revisionH-/A-share Dec-26 target prices cut by 13%/18% on averageReflects a higher cost of equity and a narrowing A-H premium.
- Major P&C insurers' 2025 combined ratio96.8%-97.6%Already at a relatively strong level in recent years, leaving limited room for further improvement.
Impact & implications
The investment implication is that if the market sells off insurance stocks on a 1Q26 equity-market pullback and a near-term earnings decline, it may create a window to buy life-insurance leaders on weakness. The report is more positive on China Life and Ping An, which have clear dividend policies, improving core earnings, and P/EV re-rating potential; it is relatively cautious on property & casualty insurers, especially PICC P&C, because room for underwriting improvement is limited and short-duration assets bring reinvestment risk.
Risks
- Equity assets rose to about 1.5x shareholders' equity, amplifying short-term earnings volatility.
- 1Q26 may see net profit decline because of the CSI 300 pullback and weak markets.
- Dividend policy transparency remains insufficient, with some companies still referencing unpublished old Chinese accounting standards.
- Limited room for improvement in property & casualty underwriting, along with intensifying competition and thinner margins in agricultural insurance, could pressure profitability.
- Interest rates, bond accounting classifications, and duration mismatches may affect solvency capital and investment returns.
What to watch
- 1Q26 earnings results from insurers and whether they trigger further EPS cuts.
- How equity-market moves affect FY26E earnings and solvency capital.
- Life-insurance NBV growth, NBV/FYP margin, and penetration of protection riders.
- The inflection point between CSM balance, new-business CSM, and CSM release.
- Dividend policy, free cash flow, and shareholder-return communications from China Life and Ping An.
- Whether combined ratios in property & casualty insurance rebound from 2025 lows, and whether investment yields come under pressure.