Posted on Mar 27, 2012 by Sergio Ulloa
China Life Insurance Co., the mainland's and indeed the world's largest life insurer by market value, made news this week in reporting a considerable 45.5 percent drop in 2011 full-year operating profit. The Chinese insurer acknowledged that slowing domestic business growth and weak stock market returns had adversely affected the company's performance over the past year.
In a company statement
filed to the Shanghai Stock Exchange on Monday, China Life revealed that it's net profit for the year ending December 31 was CNY18.33 billion (US$2.9 billion), down from the CNY33.63 billion (US$5.35 billion) posted in 2010, while total revenues declined 3.9 percent year-on-year to CNY370.9 billion (US$59.8 billion). The statement further revealed that China Life's net income amounted to CNY1.6 billion (US$250 million) during the most recent October to December reporting period, down 82 percent, which equated to the biggest quarterly drop in earnings in company history. The Beijing-based insurer had warned of a potential 40 to 50 percent drop in earnings earlier this month so while the year-end result was of course significant; it did not come as much of a surprise to most market analysts. These figures will be further discussed at China Life's 2011 Annual Results Investors and Analysts Briefing & Press Conference in Hong Kong this week.
China Life has seen its premium growth rate stall due to increased competition in the mainland life insurance market. A rule introduced in March 2010 which now prevents life insurance companies from sending agents to sell policies at local banks, has had the subsequent effect of pushing more Chinese lenders into the bancassurance industry and driving up market competition. Banks and other insurers have been particularly effective in challenging China Life over high-yielding wealth-management products. As a result of this development, China Life noted that its first year premiums fell by 15.7 percent last year, while growth in one-year new business remained weak at 1.8 percent. Overall the state-owned company's net premiums rose by only percent to CNY318.28 billion (US$50.6 billion) last year, according to their report. The insurer managed to post a 16 percent increase in net premiums in 2010.
Following the results, China Life announced plans to sell up to CNY 38 billion (US$6 billion) of subordinated bonds in the mainland and CNY8 billion (US$1.27 billion) worth of paper in the offshore market, in order to replenish its capital levels. The bond issue plan remains subject to shareholder and China Insurance Regulatory Commission (CIRC) approval. The life insurer has also proposed a cash dividend of CNY0.23 (US$0.04) per share for 2011, down from the CNY0.40 (US$0.06) per share offered in 2010.
Chinese life insurance companies typically invest around 10 percent of their assets into equities, with the rest held in bank deposits and bonds, and have thus been badly affected by the 22 percent domestic, yuan-denominated stock market slump last year. This stock market rout pushed China Life's impairment losses past CNY12.94 billion (US$2.06 billion) during 2011, up from the CNY1.73 billion (US$280 million) reported in 2010, with the insurer's investment yield falling to 3.5 percent from a ratio of 5.1 percent over the same period as well. China Life hope these pronounced investment losses are a one-time event, as recent moves made by China's central bank to cut reserves and loosen the state's monetary policy have already worked to lift share prices considerably this year. The Shanghai Composite Index has risen by 6.9 percent since the start of 2012, as concerns of economic contraction across the Asia Pacific fade, and this rebound in investor confidence is expected to help insurers recoup investment income and could boost the sales of savings-based insurance products going forward as well.
China Life's performance relies heavily on investment income
and thus the insurer is more sensitive to stock-market swings than some of its domestic rivals. Among these Chinese insurance rivals, Ping An Insurance, stood out by posting a considerable 12 percent gain in annual profits last week. The insurer said it made a net profit of CNY19.48 billion (US$310 billion) in 2011 and has been able to weather the country's ongoing stock market volatility better through its strategy of increased business diversification. China Pacific Insurance has also managed to sustain itself with a 2.9 percent annual rise in 2011 net profits to CNY 8.31 billion (US$1.32 billion), according to a recent company filing. China Pacific further added that its market share was now 10.8 percent, with company revenue growing by 11 percent year-on-year to CNY154.9 billion (US$24.6 billion) in tow.
While they maintain their leading position for now, China Life saw its market share shrink to 33.3 percent last year from 37.2 percent in 2010, according to the filing China Life also managed to finish the year with a 170.12 percent solvency ratio, which although higher than China's 150 percent statutory minimum requirement, was much lower than the 212 percent ratio the insurer recorded at the end of 2010. This sluggish performance has carried into 2012, with China Life reporting that gross premium levels have been down by 6.2 percent year-on-year and 25 percent month-on-month, to CNY79.4 billion (US$12.6 billion), during the first 2 months of the year. The Chinese central government has since used its power to appoint former CIRC Vice President Yang Mingsheng as new China Life chairman
to hopefully right the ship. Going forward, low interest rates and national and global economic volatility will require China Life to be more disciplined than ever in their underwriting and investment decisions.
Insurance Companies Mentioned
China Life Insurance
China 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.
China Pacific Insurance (Group) Co., Ltd. (CPIC) is a insurance company providing, through its subsidiaries, a range of life and property and insurance services and pension products to individual and corporate customers throughout the country. CPIC was founded on May 13, 1991, and is headquartered in Shanghai.
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.