When examining insurance companies, rather than fixating on the quarterly heartbeat of net profit, it pays to focus more on value growth on the liability side, cost control on the underwriting side, and the operating profit temporarily obscured by market volatility.
The third-quarter reports of the five major listed insurers are all out, and the headline numbers are indeed striking. In the first three quarters, China Life, Ping An, China Pacific Insurance, PICC, and New China Life together reported attributable net profit of 276.577 billion yuan, a year-on-year decline of 35.08%. Even more alarming is the third quarter alone: the five companies combined lost 40.81 billion yuan, with China Life, PICC, and New China Life all swinging directly from profit to loss. Although Ping An and China Pacific Insurance remained profitable, their single-quarter profits plunged by 93.7% and 68.4% respectively. If one only looks at this layer, it is easy to conclude that something terrible has happened to insurance companies.
But a closer reading of the third-quarter reports reveals the other side of the story: the income statement was hit hard by the equity market, but the fundamental base of the insurance main business has not collapsed.
Why did profits suddenly vanish? The root cause points to the same accounting item: gains or losses from changes in fair value. In the first half of the year, this item for the five insurers totaled a positive 173.785 billion yuan; by the end of the first three quarters, it had turned to a cumulative negative 180.981 billion yuan. Between the positive and negative swing, the fair value change loss in the third quarter alone reached a staggering 354.766 billion yuan. In other words, more than 350 billion yuan in paper losses pierced directly through to the income statement in that quarter. This is related to the new accounting standards. A large volume of equity assets has been classified under the category of "measured at fair value through profit or loss," meaning that when stock prices fall, losses must be recognized immediately on paper even if the shares have not been sold. Meanwhile, in the third quarter of last year, the equity market happened to rally strongly, and the five insurers together earned a massive 247.8 billion yuan in that single quarter, setting an extraordinarily high base. In the third quarter of this year, the CSI 300 fell 12.5%, the CSI 800 dropped nearly 14%, and both the ChiNext Index and the STAR Composite Index retreated by more than 20%. A high base colliding with a market correction naturally makes the profit figures look ugly.
But this "loss" does not mean the insurers actually lost more than 350 billion yuan in real terms in the stock market. It is more a reflection of market price changes in their holdings as of September 30 鈥?a paper loss, not a realized loss already in the bag. Insurance companies operate long-term policies, and profits should inherently be viewed across cycles. Using a single quarter's fair value fluctuations to judge operational performance is itself prone to distortion.
How is the insurance main business actually doing? First, look at the liability side 鈥?the "selling insurance" end. In the first three quarters, insurance service revenue for all five insurers maintained positive growth. Among them, PICC recorded 443.329 billion yuan, up 2.8%; Ping An recorded 422.944 billion yuan, up 0.3%; China Pacific Insurance recorded 218.851 billion yuan, up 0.9%; China Life recorded 167.437 billion yuan, up 3.7%; and New China Life recorded 39.292 billion yuan, up 4.4%. Revenue is rising, so how well are costs (expenses) being controlled? A detailed calculation makes it clear. In the first three quarters, insurance service expenses for the five major insurers were: PICC 399.383 billion yuan, Ping An 336.333 billion yuan, China Pacific Insurance 185.727 billion yuan, China Life 105.022 billion yuan, and New China Life 23.621 billion yuan. Subtracting "expenses" from "revenue" gives us the metric that best reflects the main business's profitability under the new standards 鈥?insurance service results. Among them, Ping An led with 86.611 billion yuan, followed by China Life (62.415 billion yuan) and PICC (43.946 billion yuan), while China Pacific Insurance and New China Life recorded 33.124 billion yuan and 15.671 billion yuan respectively.
However, although the main business has held steady overall, internal structural divergence remains pronounced. First, look at life insurance new business value (NBV), which represents future profit potential, and the divergence is clear. China Life's NBV grew 13.1% year-on-year in the first three quarters, the only double-digit growth; New China Life's NBV was 8.873 billion yuan, maintaining positive growth. Ping An's life and health insurance NBV fell 13.3% year-on-year, while China Pacific Life declined 6.5%. Next, look at cost control on the property and casualty side, where all three P&C insurers improved collectively. PICC P&C's combined ratio was 95.8%, down 0.3 percentage points year-on-year, with underwriting profit of 16.545 billion yuan, up 11.3% year-on-year; Ping An P&C's combined ratio was 95.6%, optimized by 1.4 percentage points; China Pacific P&C's combined ratio was 96.2%, also optimized by 1.4 percentage points. A combined ratio below 100% means the underwriting business itself is profitable. In an environment of intense auto insurance competition and frequent non-auto disasters, this achievement is not easy.
What is the market watching? If single-quarter profit is "noise," then what is the "signal"? A more reference-worthy indicator is operating profit. Operating profit strips out short-term market fluctuations and one-off items, better reflecting an insurer's ability to generate profits from daily operations. Ping An's attributable operating profit in the first three quarters was 125.905 billion yuan, up 8.3% year-on-year; China Pacific Insurance's operating profit was 30.081 billion yuan, up 5.6% year-on-year. China Life also disclosed that after excluding short-term fluctuations in publicly traded equity, net profit was 94.22 billion yuan, up 15.8% year-on-year. In other words, if one ignores stock market movements, insurance companies' operating profits are actually improving. Institutional attitudes are also relatively calm. Huatai Securities directly stated that accounting profit fluctuations are "closer to noise" and do not represent changes in operational capability. Multiple research reports noted that the insurance sector's valuation is at historical lows, with PEV at only 0.45 to 0.80 times, and public fund holdings at just 0.46%, significantly underweight. After short-term performance pressure is released, a more suitable allocation window may actually emerge.
Of course, no one can guarantee how the equity market will perform in the fourth quarter and next year. If the market continues to adjust, fair value changes will continue to disturb book profits. But for a policy business with terms often spanning ten to twenty years, a single quarter's income statement fluctuation is far from the whole story. When examining insurance companies, rather than fixating on the quarterly heartbeat of net profit, it pays to focus more on value growth on the liability side, cost control on the underwriting side, and the operating profit temporarily obscured by market volatility.
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