Posted on Aug 17, 2011 by Sergio Ulloa
China's powerhouse insurance market has progressed unabated this summer, with the latest figures released today by two large state-owned players, Ping An Insurance Group and China Life Insurance, showing continued premium growth through July.
China Life, the Asian nation's largest insurer by market share, posted net premium income of CNY19.8 billion (US$3.12 billion) in July, a 10 percent rise on last month's figures. Total accumulated premium income for the January to July 2011 period has grown by 5.23 percent annually to CNY215.3 million (US$33.67 billion). China Life has been able to continue posting these figures despite seeing its market share fall for 6 straight months since February. This proves that despite increased competition from other players in the Chinese market, there remains enough untapped business potential
to push the company's margins. China Life has been on the Fortune world top 500 companies list for nine years in a row now, moving up to number 113 from 118th place last year, when the insurers brand value surpassed CNY100 billion (US$15.6 billion) for the first time.
On Monday, the share price for China Life Insurance rose by 5.86 percent on Hong Kong's Heng Seng Index ahead of its first-half earnings announcement. Chinese insurance companies had fallen into a slump earlier in the month, tied to the sovereign debt crises in the United States and Europe and the effect this could play on global economic growth. This week however, Chinese stocks have been able to bounce bank on speculation that the central government would introduce measures to boost economic output after new lending dropped and global money supply growth slowed down. The People's Bank of China may join with other Asian nations, including South Korea to India, in delaying planned interest-rate hikes after the leading financial and political analysts called for increased global cooperation to stabilize financial markets.
Ping An Insurance, China's number two insurer, posted a 11.73 percent monthly rise in premium income to CNY13.6 billion (US$2.1 billion) for July 2011. The company reported in more detail that income from life insurance had risen 35 percent in the first seven months of the year to CNY78.8 billion (US$12.3 billion). Premium income from property, health, and annuity insurance policies meanwhile had risen by CNY6.6 billion (US$1.03 billion), CNY12.34 million (US$1.93 billion), and CNY400 million (US$62.5 million) in July, respectively representing year-on-year growth of 36, 84, and 29 percent for the period from 1 January 2011 to 31 July 2011. Shares in Ping An Insurance rose 8.53 percent this week, which has lifted the stock out of the oversold levels on the charts
The biggest mover on the trading floor this week however, was China's largest property insurer, PICC Property & Casualty Co Ltd (PICC), whose shares surged more than 10 percent in volume, nearly double the company's 30 day average, after the insurer beat forecasts to record a 96.7 percent increase in first-half net profit growth, raking in CNY5.29 billion (US$827 million) versus CNY2.69 billion (US$420 million) in 2010. The Beijing-based general insurer cited that the improving regulatory environment in China had helped their underwriting profit grow to CNY4.94 billion (US$772 million) for the period, a 157 percent increase from CNY1.92 billion (US$300 million) the prior year. The Group is aiming to make underwriting profits again through the rest of the year, after premium rates rebounded and improvements to the company's claims management processes have been implemented. The gross margin for this business has risen from 3.3 percent year-on-year to 7.5 percent. PICC's success has enabled the company to announce its first interim dividend payout in four years, CNY 0.225 per share held.
Before Monday's gains, PICC's stock had slipped more than 13 percent since the beginning August, on concerns that further liberalization in the Chinese auto insurance market could hurt the insurer and lead to it being pushed out its favored business line. PICC's ability to beat estimates and maintain its leading position in the Chinese nonlife sector, with a 37.3 percent market share, has been credited with lifting the share price of the rest of its China insurance peers this week.
PICC is one of several second-tier Chinese insurers now looking to raise billions of dollars in fresh external funding
through a dual listing in Shanghai and Hong Kong. Ping An Insurance and China Life Insurance have already been listed on both overseas and domestic bourses. In June, China's National Social Security Fund invested CNY10 billion (US$1.55 billion) in an 11 percent stake in PICC
, to boost the insurer's solvency ratio to meet regulations for a future listing. New China Life Insurance Co., China's third-largest insurer by premiums, was the first off the mark for an IPO, applying for listing approval in Hong Kong last week
. Despite their sizeable client base, China's predominant insurers will face moderate industry risk in the long term without extra capital due to their relatively low capitalization, unrefined risk management practices, limited asset and liabilities management options and any adverse macroeconomic developments.
Meanwhile in Taiwan, two major state-government funds, the labor pension fund and the labor insurance fund, have experienced mixed performances on the stock markets during the summer months. According to the latest data released by the Taiwanese government, at the end of June, the labor pension fund totaled NT$1.225 trillion (US$42.3 billion) with a NT$7.9 billion (US$272 million) gain from domestic bourses, which translates into a yield of just 0.0678 percent. That figure was substantially less than the NT$13.08 billion (US$451 million) gain reported back in May. Taiwan's labor insurance fund, which holds NT$425.7 billion (US$14.7 billion), performed similarly with a NT$1.55 billion (US$53 million) gain from stocks, a 0.4 percent yield, all less than the NT$4.39 billion (US$151.6 million) noted for May 2011.
The sluggish performance from both insurance funds was in line with the moderate gains in stocks occurring elsewhere in June. The global economy remains in a parlous state due sovereign debt issues in many mature consumer markets, which drives down export orders from emerging Asian economies. Growth in neighboring China has also been tempered due to high inflationary pressures. The government is confident however that these Taiwanese funds will pocket more gains in coming months. The commission that runs the labor pension fund has projected gains of NT$16 billion (US$550 million), while the labor insurance fund is forecast to gain NT$6.4 billion (US$221 million), as the global markets readjust and hopefully gain traction around the world. Regardless of macroeconomic events however, the Chinese insurance market will continue to be lucrative investment opportunity for business due to its emerging wealth, low penetration rates for coverage and a growing demand for the necessary protection
in this increasingly interconnected and volatile world.
Insurance Companies Mentioned
China Life Insurance
China Life Insurance LogoChina Life Insurance Company Limited (China Life) is a People's Republic of China-based life insurance company. The products and services include individual life insurance, group life insurance, accident and health insurance. The Company operates in four business segments: individual life insurance business, group life insurance business, short-term insurance business, and corporate and other business.
People's Insurance Company of China (PICC) is a state-owned holding company in the PRC, founded in 1949, that sponsors its subsidiaries: PICC Asset Management Company Limited and PICC Property and Casualty Company Limited (PICC P&C) among others. PICC P&C was established in 2002 and is now China's largest non-life insurer. The insurer remains the designated agent within the People's Republic of China for most major international insurance companies. In 2005, PICC announced a life-insurance joint venture with Sumitomo Life Insurance Co called PICC Life Insurance Co., which is now the sixth largest life insurer in the country.
Ping An Insurance (Group) Co. of China Ltd.
Ping An Insurance is the first integrated financial services conglomerate in China that blends its core insurance operations into securities brokerage, trust and investment, commercial banking, asset management and corporate pension business to create a highly efficient and diversified business profile. The Group was established in 1988 and headquartered in Shenzhen, Guangdong Province, China.