Ping An’s $22b push to shed old-school insurance skin

Ping An Insurance wants to be valued more like a technology company. Its executives have yet to convince investors their planned $22 billion spend on everything from artificial intelligence to block chain will work.

While Ping An’s Hong Kong-traded stock has risen 36% since January, it trades at 9.7 times projected earnings over the next 12 months, well below Tencent Holdings Ltd. and Alibaba Group Holding Ltd., both at more than 20.

The insurance and financial firm, which still makes the bulk of its money selling old-school life, health and property and casualty policies, has pinned much upon being able to hand rear, and then spin off, tech unicorns.

Yet online health provider Good Doctor, which Ping An listed in 2018, is losing money and car-buying website Autohome Inc. has shed close to one-quarter of its value since its May peak. Wealth management platform Lufax is stuck in the IPO pipeline amid regulatory changes, and now WeWork’s debacle has cast a pall over the share-sale prospects of fintech unit OneConnect.

Investors shouldn’t be “over excited” about Ping An’s technology push, said Leon Qi, who covers financial companies at Daiwa Capital Markets Hong Kong Ltd. The progress of spinning off tech unicorns is below expectations, he said.

At HK$88 a share, Qi has the lowest target price for Ping An among analysts tracked by Bloomberg. The stock closed Wednesday at HK$93.90.

Such skepticism doesn’t sit well with Co-Chief Executive Officer Lee Yuan Siong.

Ping An’s shares haven’t even begun to reflect the benefits that the company’s internet operations, known as its five ecosystems, have started bringing to the firm’s core financial businesses, Lee said.

Impressive Statistics
“Every part has room” to increase in valuation, he said in an interview from his office in Shenzhen’s Ping An Finance Center, the city’s tallest building from which, on a clear day, Hong Kong is visible in the distance. “Should the smart investor, before it’s reflected, invest first?”

Ping An’s embrace of everything high-tech has produced some impressive statistics. Automotive claims can be settled online in under three minutes; chatbots answer callers’ inquiries with 95% accuracy; delivering insurance policies electronically saves 310 million sheets of paper a year.

The firm has plowed $7 billion to date into technology and R&D and plans another $15 billion over the next decade. It’s spun off 10 tech startups, based around those five ecosystems in financial services, health care, real estate, automobile, and smart city, or government, services.

The strategy itself is not hard to understand. Technology can improve Ping An’s main life, health insurance and financial-services businesses, and generate additional value for those areas, by helping to acquire new customers and lower costs with more accurate pricing. Ping An’s tech products can also bring in revenue streams of their own if sold to third parties, while the startups, once listed, can create additional shareholder wealth.

It’s an approach that’s helped Ping An deliver faster new business value growth than its peers, as well as profitability at its property-insurance arm that’s 3 percentage points above the industry average.

‘Unknown Magic’
Lee said Ping An’s ecosystems are already bringing in about one-third of the group’s new financial-services clients, or 20 million in the first half of this year. That’s helped to boost operating profit per client by more than 20%. The growth will continue because Ping An can “very easily” cross-sell things like medical insurance and auto loans, he said.

“Ecosystems can be a real value driver, if done right,” said Henrik Naujoks, the Hong Kong-based global head of insurance at Bain & Co. They allow insurers to redefine their traditionally “low-touch” customer relationship by adding services and by gaining deeper insights into things like driving habits, which can then translate into more sophisticated underwriting models, customer selection and pricing, he said.

Ping An is “seen as one of the most, if not the most, technologically advanced insurance companies globally,” Naujoks said. “I’m organizing regular events and Ping An is always the ‘unknown magic’.”

As other insurance players watch Ping An, it’s focused on the world of startup innovations. Chief Innovation Officer Jonathan Larsen, a former Citigroup Inc. veteran, tracks about 7,500 fintech companies globally and another 7,500 in health care, scouring the field for potential investments or partnerships.

That approach, he says, has helped the group become one of a very few large financial institutions globally to create technology-based business lines. Goldman Sachs Group Inc.’s Marcus — a retail brand that offers personal loans and online savings accounts to individuals — is another rare example, but smaller than Ping An’s tech units, he said.

In terms of on-selling the technology it develops, Ping An counts international firms like France’s AXA SA as clients, he said.

The closed loop of value creation can take time to come to fruition, said Jessica Tan, Ping An’s Co-CEO of technology. “Why do we dare to do that? Because every step we take is no regret — even if you don’t believe what comes next, our every step itself has its very solid reward of value.”

It’s still early days, though.

Ping An’s technology units contributed just 3.8% of operating income in the first half, down from 7% a year earlier, as expenses rose. The company is due to report third-quarter earnings Thursday.

Ping An needs to deliver “real synergies” within its ecosystems to convince investors, particularly those burned by once high-flying tech firms like Leshi Internet Information & Technology Corp., according to Vey-Sern Ling, a Singapore-based internet analyst with Bloomberg Intelligence.

The contribution of Ping An’s ecosystems in adding new financial-services clients only amounts to “an additional customer acquisition channel,” a function that can also be performed traditionally by agents offline plus has its own costs, he said.

And when it comes to competing outside of China as a tech firm, Ping An — whose name in Chinese means ‘safe and well’ but whose brand overseas is little known — needs to earn customers’ trust, Bain & Co.’s Naujoks said.

Daiwa’s Qi, one of Ping An’s most bearish observers, is blunter still.

“For Ping An’s biggest segment of life insurance, we’re not really seeing technology as revolutionary,” he said. As for the company’s fabled ecosystems, “we prefer to call it a cross-selling model.”