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Author | Xie Meiyu

Editor | Fu Ying

Source | Unicorn Finance

Hongkang Life Insurance Co., Ltd. (hereinafter referred to as "Hongkang Life") submitted a loss report in the first half of the year.

The solvency report for the second quarter of 2024 shows that Hongkang Life Insurance's insurance income in the first half of the year was 4.185 billion yuan.The cumulative loss was 97.7529 million yuan, a 4-fold drop from profit to loss year-on-year.

Hongkang Life Insurance was established in 2012, and Lu Dezhi of the Xianghui Group served as the company's legal representative and chairman. However, Lu Dezhi did not directly hold shares in Hongkang Life Insurance.

On January 31, 2022, Hongkang Life Insurance announced that "due to personal reasons, Lu Dezhi will no longer serve as chairman, director, member of the professional committee under the board of directors, etc."

Four days before Lu Dezhi stepped down, an anti-corruption documentary produced by the Hunan Provincial Commission for Discipline Inspection and Supervision exposed the case of Lu Ping, the former general manager of Hunan China Tobacco Industry, suspected of accepting bribes. Lu Dezhi appeared as a "special relationship person".

Since then, the position of chairman of Hongkang Life Insurance has remained vacant.

In addition, as of the second quarter of 2024,The total proportion of shares pledged or frozen by the seven shareholders of Hongkang Life Insurance is as high as 48.31%.Under such circumstances, how will Hongkang Life Insurance turn the situation around in the second half of the year?

1

Net profit plummeted 4 times in the first half of the year. Is there any hope for 12 consecutive years of profitability?

In 2023, Hongkang Life Insurance’s total assets will be 87.648 billion yuan.At the beginning of its establishment, Hongkang Life Insurance seized the development trend of Internet insurance and took advantage of it to achieve profitability in its first full year of operation.The net profit in 2013 was 943,800 yuan, and it has remained profitable since then.
From 2014 to 2019, Hongkang Life Insurance's net profit continued to rise, reaching RMB 7.9195 million, RMB 23.2749 million, RMB 38.5446 million, RMB 78.9883 million, RMB 166 million, and RMB 176 million, respectively.

Image source: Canned Image Library

However, Hongkang Life's net profit in 2020 was 33.3639 million yuan, a sharp drop from 176 million yuan in 2019.; The profit levels from 2021 to 2023 will be lower than that in 2019, with net profits of 2.9824 million yuan, 16.6394 million yuan, and 954.789 billion yuan respectively.

The reason may be related to the introduction of new regulations on dividend insurance.

In February 2020, the former China Banking and Insurance Regulatory Commission issued the "Notice on Strengthening Actuarial Supervision of Life Insurance", which strictly adjusted the dividend distribution of participating insurance, clearly demonstrated the calculation method of the interest rate cap, and unified the dividend distribution ratio to 70%.

Image source: China Banking and Insurance Regulatory Commission website

Affected by this, three of the top five products in terms of original premium income of Hongkang Life Insurance in 2020 and 2021 were participating insurance products, with total premiums of 4.603 billion yuan and 1.814 billion yuan;In 2019, the company's top four revenue-generating products were all dividend insurance, with a total premium of 11.435 billion yuan.
In 2022 and 2023, there was no dividend insurance among the top five products in terms of original premium income of Hongkang Life Insurance, and whole life insurance products accounted for most of the income.

Source: Hongkang Life Insurance 2023 Annual Report

In this regard, Zhi Peiyuan, a master's degree student enterprise tutor at the School of Management of China University of Mining and Technology (Beijing) and president of Zhongqinnong Co., Ltd., pointed out: "In recent years, against the backdrop of a downward interest rate cycle and increasing economic uncertainty,Whole life insurance products are more popular in the market due to their long-term stability and value preservation and appreciation characteristics.At the same time, the regulatory authorities’ requirement that insurance products return to their essence of protection has prompted insurance companies to proactively adjust their product portfolios and strengthen protection functions to meet the dual demands of the market and policies.”
The transformation and focus on whole life insurance did not improve Hongkang Life's performance. In the first half of 2024, Hongkang Life's cumulative loss was 97.7529 million yuan, down 410.93% from the profit of 31.4391 million yuan in the first half of 2023.If we want to continue the 11-year profit-making performance, there will be considerable pressure in the second half of the year.
Hongkang Life Insurance stated in its second quarter report that the company's business in the second quarter of 2024 did not meet expectations, and the new premium target achievement rate was 79.22%, mainly due to the implementation of the "reporting and banking integration" policy. It has brought certain negative impacts on channel cooperation and product sales.
In response, Hongkang Life Insurance said that it has actively promoted product development and reserves, carried out relevant research, and communicated, exchanged and trained with channels.Make full preparations for subsequent business recovery.
From the product perspective,In the second quarter of 2024, the top three surrenders of Hongkang Life Insurance were all investment-linked products.Among them, the cumulative surrender amount of "Hongkang Yuexiang Changying Whole Life Insurance (Investment Linked Type)" in 2024 was 2.107 billion yuan, and the cumulative surrender rate was 10.85%; the cumulative surrender amount of "Hongkang Win-Win Group Pension Annuity Insurance (Investment Linked Type)" was 547 million yuan, and the cumulative surrender rate was 45.66%.
Yuan Shuai, deputy secretary-general of the Zhongguancun Internet of Things Industry Alliance, said, “This is mainly affected by factors such as market fluctuations, investment returns that are lower than expected, and changes in consumer risk preferences.Investment-linked products are usually closely related to the performance of the capital market. When the market performs poorly or investors are pessimistic about the future, the surrender rate tends to rise.”
2

After Lu Dezhi of the Xianghui Group left office, no one took over the position of chairman

In addition to performance, since January 2022, when former chairman Lu Dezhi left office,Hongkang Life Insurance has been in a state of "leaderlessness".

Relying on Hunan Xianghui Asset Management Co., Ltd. (hereinafter referred to as "Xianghui Asset"), the Lu brothers expanded the "Xianghui system" territory and once held listed companies such as Wanfu Biosciences (now renamed Joyvio Holdings, 300268.SZ) and Hongyu New Materials (now renamed Huamin Holdings, 300345.SZ).

Lu Dezhi is the eldest brother among the Lu brothers.According to The Paper, the Xianghui Group is considered to be one of the descendants of the Delong Group that once dominated the capital market.

In October 2015, Lu Dezhi became the legal representative and chairman of Hongkang Life Insurance. Starting from the solvency report disclosed in the second quarter of 2018, Lu Dezhi also became the actual controller of Hongkang Life Insurance.

Image source: Canned Image Library

However, in January 2022, Lu Dezhi uncovered the corruption case of Lu Ping, the "female boss" of a 100 billion tobacco company.

According to the anti-corruption documentary "The Fight against Corruption and Promoting Integrity is Always on the Road" produced by the Hunan Provincial Commission for Discipline Inspection and Supervision, the former "head" of Hunan China Tobacco, Lu Ping, treated Lu Dezhi and others as guests of honor in order to enter a "higher level circle".In 2002, at the recommendation of Lu Dezhi, Lu Ping arbitrarily arranged for Changsha Cigarette Factory to purchase more than 600 million yuan of government bonds. Later, due to the broken capital chain of the other company, 200 million yuan of funds could not be accepted and converted into cash.

Subsequently, Lu Dezhi no longer served as the chairman of Hongkang Life Insurance.

Before Lu Dezhi was exposed as a "special relationship person" in the corruption case, according to Huamin Shares' announcement on October 28, 2020, another core figure of the "Xianghui Group",Lu Dezhi's younger brother Lu Jianzhi was investigated and detained by the Changsha Municipal Supervisory Committee on suspicion of committing a duty-related crime.On the same day, Huamin Co., Ltd. urgently elected the Lu brothers' nephew, Xiong Meng, as the new chairman.

In May 2021, Lu Jianzhi was arrested on suspicion of bribery.As a result, the "Xianghui Group" gradually fell into silence.

Image source: Canned Image Library

It is worth mentioning that in addition to Hongkang Life Insurance, in the insurance industry, the "Xianghui Group" once had connections with Huahai Property Insurance Co., Ltd. (hereinafter referred to as "Huahai Property Insurance").

In April and July 2016, Qingdao Shenzhou Wanxiang Culture Communication Co., Ltd. (hereinafter referred to as "Shenzhou Wanxiang") and Qingdao Lebao Internet Technology Co., Ltd. (hereinafter referred to as "Lebao Internet") joined Huahai Property Insurance, holding 5% and 10% of the shares respectively. Lebao Internet and Shenzhou Wanxiang were both established in 2007.

In May 2017, Lebao Internet's equity changed. Hunan Huamin Capital Group (formerly Hunan Huamin Capital Co., Ltd.) invested 100 million yuan and became the largest shareholder.Its chairman Lu Jianzhi became the legal representative of Lebao Internet.

In May 2021, the former China Banking and Insurance Regulatory Commission announced the third batch of major illegal and irregular shareholders list.As the original shareholders of Huahai Property & Casualty Insurance, Lebao Internet and Shenzhou Wanxiang are on the list.At present, Lebao Internet and Shenzhou Wanxiang have both been deregistered.

now,Xianghui Asset also holds a 12.14% stake in Huaan Property & Casualty Insurance Co., Ltd. (hereinafter referred to as "Huaan Property & Casualty Insurance") and is its fourth largest shareholder.

However, Alibaba Asset Auction Network shows that Xianghui Asset has auctioned 195 million shares of Huaan Property & Casualty Insurance twice. The starting price of the shares was 739 million yuan on December 29, 2023, but it failed to sell because no one bid.In January 2024, the starting price of the equity was 591 million yuan, but even at a discounted auction, no one was interested.

Image source: Alibaba Asset Auction Network

3

It is not easy to increase capital, and bond profits can improve solvency

After Lu Dezhi of the "Xianghui Group" withdrew, it is still unknown when Hongkang Life Insurance will be able to fill the "top leader" position.The company is currently at the helm by general manager Zhou Yuhang.
In June 2022, Zhou Yuhang, as the deputy general manager, took over from Lu Dezhi as the legal representative of Hongkang Life Insurance; in October 2021, Zhou Yuhang was approved for "regularization" and has been serving as the general manager of Hongkang Life Insurance ever since.
According to his resume, Zhou Yuhang once worked as the assistant general manager of the e-commerce division of Hongkang Life Insurance. Before returning to Hongkang Life Insurance,Zhou Yuhang serves as the vice president of JD Technology Holdings Co., Ltd. and general manager of the wealth management division, and also serves as the general manager of Tianjin Jintou Insurance Brokers Co., Ltd., a wholly-owned subsidiary.
It is worth mentioning that the Hongkang Life Insurance merger related-party transaction information disclosure announcement shows thatCompany executives and their families have repeatedly purchased their own insurance products.In the second quarter of 2024, General Manager Zhou Yuhang purchased 1,000 yuan of insurance products; in the fourth quarter of 2023, Lin Shiqing, a senior executive of Hongkang Life Insurance Branch, and his family purchased 140,000 yuan of the company's insurance products, and Wang Fenfen and her family purchased 1 million yuan of the company's insurance products...

Source: Hongkang Life Insurance Announcement

In this regard, Zhi Peiyuan believes that "although the amount involved in the purchase of corporate insurance products by company executives and their relatives is not large, this behavior can be regarded as an internal endorsement of product quality and company development prospects, aiming to enhance market trust and customer confidence. However,Such related-party transactions must strictly abide by the principles of transparency and compliance to ensure there is no conflict of interest.To maintain the company’s reputation and market fairness.”
On the other hand, Hongkang Life Insurance’s capital increase plan has yet to be finalized.
According to the announcement of Hongkang Life Insurance, in 2018, the company plans to add three new shareholders: Wuhan Hankou North Commercial Market Investment Co., Ltd. (hereinafter referred to as "Hankou North Commercial"), Meinian Healthcare Industry Holdings Co., Ltd., and Nanjing Sambo Technology Co., Ltd.A total of 143.4 million shares were issued, and the registered capital was changed from 1 billion yuan to 1.1434 billion yuan.
Later, Hankou North Trade withdrew from the capital increase due to its own reasons. Hongkang Life Insurance modified the content of the capital increase and planned to issue a total of 88.4 million shares. The registered capital was changed to 1.0884 billion yuan.However, there has been no further news on this capital increase so far.

Image source: Canned Image Library

Hongkang Life Insurance currently has 7 shareholders and no actual controller.Zhenjiang Herong Real Estate Development Co., Ltd. (hereinafter referred to as "Zhenjiang Herong") is its largest shareholder, holding a 19% stake.
According to Hongkang Life Insurance's solvency report for the second quarter of 2024,The total proportion of shares pledged or frozen by its seven shareholders is as high as 48.31%.Among them, the shares of the largest shareholder were pledged, and the shares of the second, third and fifth largest shareholders were frozen.

Source: Hongkang Life Insurance Solvency Report

but,Hongkang Life Insurance's solvency improved in the second quarter of this year.As of the end of the second quarter of 2024, Hongkang Life's comprehensive solvency ratio was 151.23%, an increase of 11.86% month-on-month, and its core solvency ratio was 97.76%, an increase of 12.46% month-on-month.
Hongkang Life Insurance said that the increase in comprehensive and core solvency was mainly due to the increase in the company's actual capital and core capital, and the significant decline in market interest rates in the second quarter of 2024.The market value of the company's bond assets, especially a large number of ultra-long-term interest-bearing bonds, has risen significantly, resulting in a higher bond floating profit., increasing the company's net assets.
In addition, Hongkang Life Insurance has effectively reduced dividend costs and universal interest rate levels, and reasonably reduced liability costs.

Image source: Canned Image Library

In the second quarter of 2024, the book value of Hongkang Life Insurance's investment assets was 37.626 billion yuan.Among them, government bonds amounted to 12.031 billion yuan, and corporate bonds amounted to 10.486 billion yuan, accounting for a relatively high proportion.In addition, Hongkang Life Insurance has equity investments of 4.722 billion yuan, and the book value of trust plans, infrastructure investments, and investment properties exceeds 2 billion yuan.
Yuan Shuai pointed out that “the general direction of life insurance companies’ bond asset layout includesIncrease investment in high credit rating bonds, to reduce credit risk; pay attention to interest rate trends and flexibly adjust bond duration to obtain stable interest income and capital appreciation;Increase allocation to ultra-long-term interest rate bonds, in order to lock in long-term low-cost funds and match the long-term liability characteristics of life insurance products; at the same time,We will also pay attention to innovative products in the bond market, such as green bonds and local government special bonds., in order to expand investment channels and fulfill social responsibilities.”
Do you think the vacancy of the chairman's position for two and a half years has a big impact on the company?Welcome to leave comments in the comment section for discussion.