Ping An Group
06 Nov 2023

Ping An Discloses the Integrated Finance Model In Detail

Building an Economic Moat with Six Unique Advantages, Driving High-quality Development with Three Operation Indicators

(Hong Kong, Shanghai, 6 November 2023) Ping An Insurance (Group) Company of China, Ltd. (hereafter “Ping An”, the “Company” or the “Group”, HKEX: 2318 / 82318; SSE: 601318) hosted its 2023 Investor Day in Shenzhen. This year’s Investor Day focused on the Group’s integrated finance strategy. Xie Yonglin, President and Co-CEO of Ping An, and Cai Xinfa, Deputy Director and Secretary General of Group Retail Integrated Finance Committee, unveiled a comprehensive overview of Ping An’s integrated finance development and strategic objectives, with in-depth analysis on the integrated finance business model, competitive advantages and room for growth. Investor questions were addressed by Fu Xin, Senior Vice President of the Group, Richard Sheng, Board Secretary and Brand Director, and James Garner, Group Chief Capital Markets Officer.

Mr. Xie said that Ping An has pursued integrated finance throughout its more than three-decade history, and it remains one of the Group’s most important strategies. Leveraging its strong technology foundation, Ping An is committed to becoming a world-leading “integrated finance + healthcare and elderlycare” services provider. Ping An provides professional financial products and services to more than 230 million retail customers under its “worry-free, time-saving, and money-saving” value proposition and its “one customer, one account, multiple products, and one-stop services” solution.

Following the compliance requirements of separate operations, Ping An's integrated financial model is broadly defined as a unique integrated finance model that focuses on customers' diversified financial needs and provides professional and convenient one-stop integrated financial solutions to maximize customer and corporate value. The core of Ping An's integrated finance model is that it is always driven by customer needs and fully covers the financial scenarios in customers' daily lives.

Integrated finance is the core driver for value growth with high-quality development

From a global perspective, integrated finance is a key business model for the international financial industry. However, it has become extremely complex and difficult to implement. Issues include licensing, organizational culture, risk management, technology capabilities and operational control. There are only a handful of successful international integrated finance cases.

Persistence leads to achievement. Ping An’s management said that despite significant challenges, Ping An has chosen the high-quality development model of integrated finance in China based on the needs of the country, customers, and shareholders. Ping An is committed to enhancing national prosperity and people’s well-being. The model reflects the Group’s aspiration and mission to provide people-centered financial services by striving to improve customer well-being. By being customer-driven and focusing on meeting customers' needs for comprehensiveness and convenience, Ping An leverages its unique advantages in integrated finance to provide comprehensive asset allocation and product services. It also provides efficient, accurate, and professional services to fully support the development of the real economy. Ping An has continued to generate return to shareholders, delivering fast business growth, operational efficiency, and profit growth that exceeds the market average. It has maintained a stable and sustainable profit distribution policy, increasing dividend levels for 11 consecutive years, and generating investment returns for shareholders that outperform the market.

Integrated finance has enabled Ping An to achieve high-quality development. Over the past three decades, Ping An has achieved a net profit growth rate far exceeding the market with its integrated finance model, with a compound annual growth rate of 27%,  compared to the highest industry market indicator of 21% during the same period. In the past three years, Ping An's return on equity (ROE) has consistently remained above 17%, surpassing the ROE performance of listed insurance companies and banks. Since 2015, integrated finance has significantly improved Ping An's three key customer operating indicators, including the number of customers, contracts per customer, and profit per customer. As of the end of 2022, the number of customers reached 227 million, 2.1 times that of 2015; contracts per customer reached 2.97, 1.5 times that of 2015; and profit per customer reached RMB585, twice that of 2015. The improvement in these three operating indicators has directly driven high-quality growth of retail operating profit, which reached RMB132.6 billion at the end of 2022, 4.2 times that of 2015.

Integrated finance is helping various business segments of Ping An achieve market leadership. Integrated finance has helped increase agents’ income. As of September 2023, integrated finance contributed a total of RMB4.43 billion to annuity premiums, health insurance premiums, and P&C insurance premiums, ranking among the top in the industry. The scale of insurance trust business jointly operated by Ping An Life, Ping An Bank’s Private Banking, and Ping An Trust has exceeded hundreds of billions of renminbi within three years. The insurance trust business has served more than 20,000 families, making it the largest insurance trust service institution in terms of market scale and customer services. From January to September 2023, the average monthly income of life insurance agents reached RMB10,584, with one-third of that consistently contributed by integrated finance. At the same time, the average monthly income of agents increased by RMB3,085 year-on-year, with integrated finance contributing 22% of that increase.

Integrated finance is driving higher operational efficiency. The customer acquisition process under the integrated finance model is shorter, with lower friction costs and higher communication efficiency, resulting in lower overall customer acquisition costs. For example, the internal customer acquisition costs for Ping An Bank, Ping An Health Insurance, and Ping An Securities are only 73%, 55%, and 53% of external customer acquisition costs, respectively. In terms of customer retention, the integrated finance model is leading to higher retention rates. Internal data analysis has found that customers who hold more contracts have stronger loyalty to Ping An and higher retention rates. When customers hold more than four contracts, the retention rate exceeds 97%. In terms of value enhancement, the integrated finance model is generatinghigher average profit per customer. Internal analysis has shown that customers who have been with Ping An for longer time generate higher average profit compared to those with shorter time. Customers that have been with Ping An for five years generate average profit that is 1.7 times higher than customers that have been with Ping An for less than a year. Integrated finance has also helped increase the average tenure of customers. As of June 2023, the proportion of customers that have been with Ping An for over five years reached 66.7%, which is 1.6 times higher than that of peer companies.

An economic moat with six unique advantages

Over the past three decades, Ping An has established six competitive advantages that cannot be copied as it progressed through three development stages: start-up, growth and acceleration.

1. An integrated financial services group that holds a full suite of financial licenses – With licenses covering insurance, banking, and asset management and 13 core financial member companies, Ping An offers full suite of financial business licenses, extensive presence and strong synergies.

2. A leading position in the industry, by focusing on the China market and core financial business – The core business revenue and margin of Ping An is primarily generated from China. At the end of September 2023, Ping An had 230 million retail customers, suggesting one in every six Chinese individuals is a Ping An customer. The Group ranked fifth among global financial enterprises in the Fortune Global 500 for 2023 and maintained first place among global insurance enterprises for five consecutive years. Ping An Life,  Ping An P&C, Ping An Bank, and other subsidiaries all ranked among the top.

3. Strong online and offline channel networks – There are more than 7,000 offline locations, covering all provinces and cities across China. Ping An has a sales and service team of over 1.3 million people. The online network, comprised of apps such as Ping An Jin Guanjia, Ping An Pocket Bank, and Ping An Auto Owner, has generated more than 700 million sales contact points.

4. The wide coverage and closed-loop healthcare and elderly ecosystems, which empower the core financial business – By connecting service providers and payers, Ping An empowers its core financial business in customer acquisition and increases value. As of the end of September 2023, 30% of the group's new customers originated from the healthcare and elderly ecosystems. Customers who have used services from the healthcare and elderly ecosystems hold an average of 3.42 contracts and RMB56,100 in assets under management (AUM), which is 1.6 times and 3.4 times more than customers who do not use those ecosystem services, respectively.

5. An world-leading support service platform, which is also Asia’s largest – Currently, Ping An has over 50,000 support staff supporting centralized help centers for 12 financial companies. The goal is to create an integrated and smart service system that consolidates the four major back offices of finance, customer services, risk control, and human resources, to provide customers with a high-quality service experience. Ping An is also using its strong digital capabilities to build an industry-leading customer labeling system, to yield comprehensive financial customer insights and develop business strategies.

6. A highly collaborative organizational culture, which supports the steady development of an integrated finance strategy – The “One Ping An” culture, with maximizing value at its core, enables diverse teams from different member companies to work towards the common goal of enhancing customer value. Empowered to collaborate, the teams achieve close cooperation, innovative exchanges, and capability building in various business areas.

Growth in three operation indicators and potential double-digit growth in retail business

As the China economy develops and wealth accumulates, the retail customers market continues to expand. Wealth management has shown strong growth, as China achieved a per-capita wealth growth rate of 12.2% over the past 20 years, much higher than the global average of 4.9%. In the next 10 years, personal financial assets of Chinese individuals are expected to continue growing at a compound annual growth rate of 9%, reaching an estimated RMB571 trillion by 2032. The insurance market holds tremendous potential, with China’s per-capita insurance density now approximately half of the global average (per-capita premium of US$550 compared to the global average of US$1,107), indicating significant room for growth in insurance penetration (premium income as a percentage of GDP).

High-value existing customers have immense potential. In 2022, various Group member companies acquired 27.11 million new customers through cross-selling and the cumulative number of new contracts from cross-selling reached 66.95 million, demonstrating a strong migration momentum. For the life insurance business, there are 170 million non-life customers in the Group, including approximately 25 million potential high-value customers. With the growth of customer financial needs, there is significant development potential within Ping An for contract allocation in products such as personal protection, investment and wealth management, property protection and loan financing, for both current high-value customers and future mature customers.

Ping An is driven by customer needs to strengthen its three business models to foster the growth of three operation indicators in the integrated finance model. Focusing on customer needs, Ping An leverages its six unique advantages to continuously reinforce its business model, operational model and profit model. By providing customers with exceptional services that exceed expectations and tangible benefits of integrated finance, Ping An elevates the value of its retail business and consistently drives high-quality growth as measured by three operation indicators – number of customers, contracts per customer and profit per customer.

To strengthen the business model, Ping An conducts in-depth and detailed analysis of different customer groups in terms of customer acquisition, customer retention and value improvement based on the different needs of different customer groups. It matches differentiated product portfolios with different asset levels and different life stages. Ping An has identified and focused on the two key demands of wealth inheritance and quality healthcare for high-net-worth elderly customers. To address wealth inheritance needs, Ping An targets potential customers with financial products for generating income, it helps build trust with investment advisory services, and it offers upgrades to private banking investment planning services, including annuities, trusts and private equity. To address quality healthcare needs, Ping An offers flagship life insurance products and provides potential customers with advanced healthcare experiences. It continues to attract customers in products such as life insurance and endowment insurance, and ultimately enjoy the top healthcare provided by Ping An Group. Ping An currently has at least 110,000 potential customers in the high-net-worth elderly group, which has the potential to achieve an average contract per customer of more than 10 contracts and an average profit per customer of more than RMB38,000. There is also huge room for growth in product diversity for the middle-class middle-aged customers who have needs such as sound financial management and daily expenses. At present, the potential number of existing customers of this customer group exceeds 13 million, the contract potential of each customer is more than 4, and the profit potential per customer exceeds RMB1,900.

The auto services ecosystem jointly created by Ping An Group's property and casualty (P&C) insurance companies and banks precisely identify needs and create one-stop products to satisfy the complex and diversified financial demands of millions of customers. The auto services ecosystem supports car owners and customers with online and offline services for car purchases and maintenance, daily consumption, refueling, parking, and driving. It provides financial products, including car insurance, car-themed credit cards, and comprehensive car life benefits. As of the end of 2022, Ping An's auto services ecosystem had served 89 million Ping An car owner customers, accounting for approximately 32% of the country's private car owners.

To strengthen its operating model, Ping An will continue to focus on demand-driven integrated smart operations. Through a single service portal, customers can enjoy one-stop access to manage multiple accounts, including financial sub-accounts, health sub-accounts and life sub-accounts. Customers also have access to professional financial advisors. The artificial intelligence (AI) financial advisor created by Ping An can be accessed through various channels, including online, offline and 95511, for insights for customers’ needs and services matching and product recommendations.

Ping An also pioneered the joint marketing model of integrated financial services in the industry, to meet customers’ expectations of diverse choice, information aggregation, and favorable prices on financial services and experiences. It includes a seamless connectivity experience among the mobile apps of 13 of its member companies, which all link to one digital "renyimen" (magic gate) portal, so customers can access products and services from different Group businesses. It also empowers collaboration among 15 member companies for the Group's coordinated launches of seasonal marketing campaigns. The average annual sales of RMB5 trillion have allowed customers to maximize marketing discounts.

To strengthen the profit model, ultimately the integrated finance model needs to showcase its superb value to the market with solid and reliable data. Hence Ping An has reshaped its valuation logic and introduced a core valuation framework for its integrated finance model based on three operation indicators: the number of customers, contracts per customer, and profit per customer. These three key indicators directly determine the operating profit of retail business, and also reflects the profitability of the integrated finance model. For example, for contracts per customer, it is divided into customer acquisition, customer retention and value-based products; for customer numbers through new customer acquisition, Ping An distinguishes between customer acquisition from its ecosystems and offline or other channels. Ping An hopes to further communicate with the market using this model, and to reshape the valuation logic of Ping An. Ping An was previously valuated by embedded value of insurance, which cannot fully reflect the enormous value of the integrated finance model. Mr. Xie said that the integrated finance model will gradually show its effects in the future. The model allows Ping An to have stronger internal growth momentum and risk resilience amidst a complicated external environment.


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