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News item 1: Two month later, how is Zhong An doing?
Decrypted: Listed on Hong Kong Exchange on September 28th, Zhong An has experienced drastic fluctuations from the stock market in its first two months. On its IPO day, Zhong An’s price started at HKD 69 which was 15.57% higher than the IPO price. It reached day’s high at HKD 70.5 and ended at at HKD 65.2. So it was worth around 12.2 billion USD (95.8 billion HKD) in market cap at the end of the day. (Zhong An’s total share number is 1.47 billion, so you can multiply it with the price to get the market cap)
The first day is exciting enough, for both Zhong An itself and also for all the InsurTech companies in China and around the world. It seems that the idea of InsurTech and Digital Insurance is well received by the capital market.
But let’s not jump to any conclusions yet, because what happened next gets even more exciting and thrilling.
After second day’s minor pullback, Zhong An’s price skyrocketed 47.60% in three days’ time (up 5.59%, 19.93%, 16.55% in each day)， from 63.45 to 93.65, with a day’s high at HKD 97.8.
However, that became Zhong An’s all time high (ATH) so far. After the crazy spikes, Zhong An’s price turned bearish and went down in 6 out of 7 weeks thereafter. Right now, after the closing bell on November 21st, Zhong An’s stock price is HKD 72.5, more than 25% down since its all time high high, but still above its IPO price.
Our take: Does Zhong An’s roller coaster story mean that the bubble of InsurTech and Digital Insurance burst?
I don’t think so, here is why.
First, Zhong An is still more than a 10 billion company.
With the price at HKD 72.5, Zhong An is worth 13.6 billion USD (106.6 billion HKD). So it is far from Armageddon for Zhong An, they are just adjusting from the overvaluation by the stock market. That’s what stock market does all the time, right? It might overestimate or underestimate a company from time to time, but given enough time, the market always returns rational and tells the correct valuation.
Second, Yes, Zhong An’s performance is no match to its valuation, but since they are in insurance, I say we shall wait and see.
According to Zhong An’s annual report for 2016, their earned premium was RMB 3.225 billion (USD 486 million) and net profits reached only RMB 9.372 million (USD 1.413 million). No comparison, no harm, but anyway, let’s take a look at how the traditional insurance companies did in 2016, so we could know how big the gap is between traditional insurers and InsurTech startups.
|2016||Revenue||Net profits||Market cap|
P.S. Data of revenue and net profits is from each company’s 2016 annual report and the market cap is taken after the closing bell on November 21st. The unit of all figures is USD.
Well…the gap is pretty huge. Revenue from Zhong An was only 0.5% of China Life and 0.42% of Ping An, yet market cap of Zhong An is 6.38% of China Life and 9.32% of Ping An.
But let’s take a look at the positive side of this comparison. China Life was founded in 1949, it took 68 years for it to grow to one of the largest insurance companies in the world. Zhong An was founded in 2013, it is still young and energetic. Besides, as a capital-intensive industry, it usually takes years, even decades, for an entrant to grow and prosper in insurance. Despite of the unpromising revenue and profits, Zhong An’s growth rate is considerably promising (over 50%). I believe, with the help of InsurTech, Zhong An will catch up and start its continuous growth soon.
Third, Insurance in China is at the dawn of rising and Zhong An is already onboard.
Numbers in my previous post indicated that China is on the verge of insurance explosion and all the big names are getting on this train, trying to grab their share with the help of InsurTech. Zhong An is already in place and armed itself with InsurTech.
Swiss Credit holds neutral in a Monday report, giving Zhong An a estimate price at HKD 75.5. It also predicted that Zhong An will expand at a 65% CAGR in 2018-2022.
I think this modest growth rate and neutral position is good for the development of Zhong An and the whole InsurTech community. You can’t expect to surpass the traditional insurers overnight, because that will only introduce chaos in the system. What Zhong An need is to focus on the improvement of insurance service with InsurTech and consumers will make their choices eventually.
News Item 2: Investor day at China Ping An, featuring Fin+tech as the future growth engine.
Encrypted: China Ping An Group, ranked 41st on Fortune 500 and 16th on Forbes Global 2000, is one of the biggest insurance incumbents in China.
They held its annual Investor Day on November 20th. Yao Bo, CFO and Chief Actuary of Ping An, said that Ping An started its innovation strategy seven years ago and kept creating proprietary values for its customers as well as growing profits for itself.
China Ping An has grown at a 24% CAGR in the past 7 years. It means that Ping An not only has kept growing, but also has been growing at a stable and sustainable rate.
Speaking of future strategies, Ping An explained their vision which is to become a world-leading Fintech group and providing financial institutions with modular services and solutions. Finance and technology will form the twin turbo to fulfill their ambition.
So how will the twin turbo work out? Yao Bo summarized it with two priorities and five technologies. Two priorities means focusing on Fintech and Medtech while five technologies means Cloud Platform, AI, Big Data, Blockchain and Biometrics.
Our take: Well, it seems Fintech is no longer overlooked by incumbents in China. Actually, it’s also true around the world. International insurance groups like Aon and Munich Re has been investing InsurTech startups for quite a while. It’s just that, in China, incumbents prefer to invest in technology directly.
Ping An is a perfect example of that. They have invested more than 50 billion RMB (7.54 billion USD) in Fintech, Medtech and AI for the past 10 years. They have built a research team with more than 22 thousand technicians, 500 big data scientists and have acquired more than 2000 global patents.
Right now, they have established a comprehensive tech stack which includes all five techs mentioned above. Let’s take a glimpse of how all that techs serving customers.
Biometrics: Combined with facial recognition, sound wave recognition and micro-expression recognition, Ping An’s biometrics solution can provide multiple applications for different scenarios such as loan approval in finance, health examination in medical, identification of policyholders and security check in airports. The accuracy of the biometrics solutions is over 99%.
Big Data: Ping An has built eco-systems in various industries such as finance, medical, auto and real estate. They can gather and process the huge amount of data generated from this systems.
AI: It includes smart recognition, smart prediction, smart risk management and smart service. And all this techs have been applied in finance, medical and P&C insurance. When AI is combined with biometrics, it would further improve efficiency and customer experience.
Blockchain: The blockchain application from Ping An is called One Ledger. It records transactions with a secure, traceable and efficient way. And it is already used in all the eco-systems mentioned above.
With the help of technologies, Ping An has built a complete operation structure, covering individual, business and financial institution clients. The diagram below indicates Ping An’s cloud service layout. It could in a way reflect the overall structure of Ping An.
The three parts in middle section are products, risk management and operations, in case the words are too small to read.
So it is clear that Ping An’s ambitions now has expanded beyond insurance. They are trying to build an ecosystem of ecosystems. How is that going to affect us?
For customers, it would be great. Because we can benefit from the increasing development of Fintech. With technology’s help, we can enjoy better financial services in the future.
For incumbents, it should be an incentive. They can learn from Ping An and evolve their tech strategy from time to time. But the most important thing is persistence. It took Ping An seven years to reap the fruit of tech strategy. So you have to stick to the right path and never give up.
For startups, it may not be so encouraging. Because it is easy to win customers from those who lag behind on innovation, but when you are competing with those who pursue innovation and keep evolving, things are not easy anymore. However, I think there are still plenty opportunities for InsurTech startups if they look at insurance from a different perspective. They don’t have to replace the incumbents to disrupt insurance, they can still do this, but this time, they can be hand in hand with the incumbents.
Thanks for reading. Ping An’s structure is too big for me to list them all in one post. If you are interesting in Ping An and want to know more, please tell me the part you are interested, I will be happy to share more.
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