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Life and health insurance are near-necessities as forms of security for our well-being. So I think the demand for such insurance products should remain robust for many years in the future. This bodes well for life and health insurance companies, assuming they are managed competently.
In Hong Kong’s stock market, Ping An Insurance Group Co (SEHK: 2318) is the veritable giant of insurance companies and happens to be the only Asian insurer deemed “systemically important” by regulators.
Meanwhile, in Singapore’s stock market you have Great Eastern Holding Limited (SGX: G07) which is the only listed company in the Lion City that specialises in life insurance (Prudential (SGX:K6S), another life insurer, is also listed in Singapore, but its primary listing is in London).
However, over the past five years, Great Eastern’s shares have delivered a pedestrian return (including dividends) of 21%. Ping An’s shares, on the other hand, have produced a strong dividend-adjusted return of 209%.
Which of the two insurers is likelier to be the better investment over the next five years?
Great Eastern’s main business activity is to provide life and health insurance products to the public in Singapore and Malaysia. In 2018, Great Eastern earned S$12.1 billion in revenue, of which 97% came from its life and health insurance business. From a geographical perspective, Singapore and Malaysia accounted for 72% and 26% of the company’s revenue in 2018.
On the other hand, Ping An sourced more than 95% of its 2018 total revenue of RMB 1,082 billion (around S$206 billion) from China. The company’s main businesses include life and health insurance (49% of total revenue), property and casualty insurance (21% of total revenue), and banking (20% of total revenue).
A useful measure of the underlying economic values of financial services companies such as Great Eastern and Ping An would be their book value per share. Great Eastern’s book value per share has compounded at a respectable rate of 7.9% per year from S$10.73 in 2013 to S$15.71 in 2018. But Ping An – whose book value per share grew by 21.4% annually from RMB 11.54 to RMB 30.44 – did significantly better in the same timeframe.
From a dividend-growth perspective, Ping An also has the better numbers. From 2013 to 2018, Great Eastern’s dividend per share inched up by just 9.1% from S$0.55 to S$0.60, whereas Ping An’s dividend per share surged by 39.5% per year from RMB 0.325 to RMB 1.72.
Winner: Ping An Insurance Group
Future growth opportunities
According to a November 2017 analyst report from Singapore’s largest bank DBS Group Holdings (SGX: D05), developed nations around the world had an average life insurance penetration rate (defined as insurance premium as a percentage of GDP) of 5.1% in 2016.
In the same year, Singapore and China’s life insurance markets had penetration rates of around 5.5% and 2.3%, respectively. These numbers suggest that Ping An’s life insurance business has more room for growth compared to Great Eastern’s.
Ping An’s property and casualty business appears to have large growth opportunities too. This is because China’s property and casualty insurance market had a penetration rate of just 1.8% in 2016, which is much lower than the developed-nations-average of 3.1%.
Then we also have China’s economy growing at a much faster pace than Singapore’s, giving Ping An a stronger tailwind than Great Eastern. For perspective, the International Monetary Fund’s latest projections, released earlier this month, has China’s GDP (gross domestic product) growing at 6.2% in 2019; Singapore’s Ministry of Trade and Industry, on the other hand, expects GDP growth of just 0% to 1.0% for our country this year.
Winner: Ping An Insurance Group
A suitable valuation metric for Great Eastern and Ping An, given the nature of their businesses, is the price-to-book (PB) ratio.
At the time of writing, Great Eastern’s share price of S$24.37 gives it a PB ratio of 1.43 whereas Ping An’s share price of HK$89.50 results in a higher PB ratio of 2.30. All other things being equal, Great Eastern currently has a more attractive valuation.
Winner: Great Eastern
Although Great Eastern has the lower PB ratio and a decent history of growth, its track record and growth opportunities are inferior compared to Ping An’s. As a result, the Hong Kong-listed insurer seems to be the better choice of the two for now from an investing standpoint.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong writer Chong Ser Jing does not own shares in any companies mentioned.