● Ping An's well-integrated ecosystem is galvanizing positive future outcomes.
● The company's fragmented capital structure provides a relatively nimble operation environment.
● These two traits have been crucial in the course of its business expansion.
● We are bullish on Ping An's future and expect it to keep outgrowing the market in the short term.
Ping An (PNGAY:OTCPK, 02318:HK), a former private regional insurance company, is now an international Financial Service (FS) giant with total assets of over CNY 9.14 trillion as of the end of the third quarter of 2020. Born small with no state-capital background, it is bigger than each insurance company in China. The stock price has climbed 2.5 times in ten years, while its largest competitor, China Life Insurance (LFC:NYSE), shrank by half.
Ping An has been much faster than others in technology adoption and business expansion. Here, we discuss why.
Arguably the most comprehensive service menu
Ping An is one of the largest comprehensive FS providers in China. Its product mix covers insurance, banking, asset management, securities, trust, technology and healthcare, among other fields. Its self-built commercial ecosystem and closed-loop services create value for customers of different social groups and identities.
The collaboration between the company’s subsidiaries creates the window for designing more complex products, while keeping the cash inside the ecosystem. For example, the cooperation between its life insurance affiliates and Ping An Bank in the bancassurance business, the health insurance segment players and Ping An Good Doctor, Lufax (LU:NYSE) and China's entire financial sector… Also, OneConnect (OCFT:NYSE), a star fintech spinoff of Ping An, not only serves as a technology platform, but also integrates all members’ accounts, saving IT, marketing cost, as well as other expenses. Decades of Ping An's successful FS integration experience is well proven by OneConnect's setting up of one-stop solutions.
Read more about Lufax and OneConnect on our website.
In the past few years, Ping An's income generated by cross-selling has been growing. For one, life insurance agents have been selling more products belonging to other insurance segments.
The growing client stickiness mirrors the company’s success as well. From 2015 to 2019, the number of individuals contracted with multiple Ping An's subsidiaries increased from 20.8 million to 73.7 billion, with the percentage of total clients grew from 19% to 37% over that period.
Innovative operations drive business growth
For over thirty years of development, Ping An has been an avant-garde company to step out of the comfort zone by exploring innovative growth drivers and monitoring ongoing trends. Its active deployments in technology and digital healthcare have achieved remarkable milestones. By the end of 2019, the patent applications in two segments were ranked as the first and second among financial institutions across the globe.
Technologies are not only used in product and service design, but also for internal efficiency enhancement. For example, in Ping An's main battlefield, the life insurance segment, the area accounted for 68.8% of the company’s operating income during the first three quarters of 2020. Ping An’s main sales channel is powered by its vast agent team, just like all other insurance companies. However, it changed track and cut the agent scale with the belief that quality is a priority, with correspondingly high standards set for remaining agents. In the short-term, the scale of the agent team did negatively impact the business, with the new insurance premium contributed by the agent channel decreasing 4.7% by the end of 2019. However, from the perspective of potential growth, the productivity of agents strengthened from this method.
The new business value (NBV) per capita increased by 16.4% while the total number of agents had decreased by 17.7% by the end of 2019. The monthly insurance policies sales increased from 1.22 to 1.38.
Furthermore, by applying technologies such as AI, Ping An self-developed an online digital education system that can customize training courses for individual agents. It shortened the training period by 3.6 months to reach the professional standard.
Being creative, just as what we illustrated, is a great way to boost shareholder’s value. The innovative strategies and technology advancements are merged into the business operation, helping Ping An maintain high return on equity.
Capital structure diversity brings benefits
Ping An has a relatively fragmented structure with no controlling shareholder – in contrast with other players. The company's executives can make more objective decisions without being affected by the majority shareholder.
By end of the third quarter of 2020, its top ten shareholders took up 59.28% of the stake. The corresponding figures are 95.94%, 97.68%, 79.86%, and 83.02% for The People's Insurance Company (PICC), China Life Insurance (LFC), China Pacific Insurance (CPIC), New China Life (NCI), respectively.
Also, the company has an employee stock ownership plan begun in 2015 that costs over CNY 10 billion. Ping An's incentive plan, which is not applied to other major insurance firms, bonds the staff's interest with the firm's business performance.
Ping An's diverse capital background gives it more autonomy and equips it with a balanced management environment for future development.
The bottom line
Ping An started from a scratch and experienced decades of development, representing the second generation of insurance corporations in China. It is now the undisputed leader in the local market, and we remain bullish on its future development.