China Life Insurers Slow Down in 2012

Posted on Apr 24, 2012 by Sergio Ulloa (G+)

China's life insurance sector has endured a mixed start to the 2012 business year, with many companies now posting lower premium growth after rapid expansion in recent times. A new research document out by Deutsche Bank reveals how the country's top four life insurers ranged quite considerably in their operating performances during the first-quarter reporting period. Life insurance premium revenues varied from a 7.5 percent decline to an increase of 16 percent during the first three months of the year, compared to the corresponding period in 2011, for the companies Deutsche Bank tracks. China Life Insurance Co, the nation's biggest insurer, reported that their premium income for the three months ended March 31 was CNY113.8 billion (US$18.1 billion), which was a considerable 7.5 drop on the CNY123 billion (US$19.5 billion) recorded during the corresponding period a year ago. This decline was felt most astutely in March where the CNY 34.4 billion (US$5.46 billion) in premium revenue represented a 10.4 percent decline on 2011's figures. China Life's premium revenues for the first two months only dipped by 6.15 percent year-on-year, by comparison. The Beijing-headquartered life insurer's decline has been attributed to a steep fall in premiums collected from new individual insurance policies in particular. This has likely resulted from a structural adjustment the company underwent last year, a move which has also affected their bancassurance distribution platform. China Pacific was the other domestic life insurer to post a drop in revenue during the first quarter. Citing a company filing, the insurer's premiums totaled CNY48.44 billion (US$7.69 billion) for the first three months of the year, which represented a slight 0.62 percent dip on the same period last year. Ping An Insurance, the country's second largest insurer, meanwhile recorded a marginal 1.7 percent increase in premium revenue, with CNY32.1 billion (US$5.1 billion) collected during the first three months of the year. New China Life, which went public last December, has seen its premium levels rise the fastest in 2012, growing by 16 percent on the year to CNY35.1 billion (US$5.57 billion). Insurers have blamed both equity market volatility and changes made to bancassurance for their more lackluster performances so far this year. Bank sales took a hit last year after the authorities tightened rules on insurance sales made by banks with effect from November 2010. At the same time, banks have been aggressive in attracting customers to save with them and competing with the insurance companies they once partnered with. Deutsche Bank noted however that while new business growth would remain challenging for Chinese life insurers throughout the first half of the year, many of the concerns these companies are facing have now been documented and priced accordingly into their share values, in anticipation of a rebound in investor confidence. Indeed the share prices of both China Life and Ping An had fallen by more than 16 percent and 13 percent, respectively, in March, which was double the Hang Seng index average at the time. Contrast that to this month where China Life is up 4.5 percent to HK$21.20 (US$2.73) and Ping An is up 8.4 percent to HK$64.15 (US$8.27), outpacing the Hong Kong benchmark's 1.5 percent rise. China Pacific Insurance meanwhile has added 3.8 per cent to HK$26.15 (US$3.37) and in Shanghai shares of New China Life has jumped 8.4 per cent to CNY33.50 (US$5.32). China's stocks across the board have risen this past week on renewed speculation that the Mainland government will ease monetary policy (increase the float on its currency) to boost economic growth and introduce other measures to spur domestic consumption of property, insurance and other financial services. It will of course take more than stable economic growth to continue the development of China's insurance trade, important internal reforms must be made and the country's authorities are beginning to act on that. Speaking at an event in Shanghai on Sunday, Chinese Vice Premier Wang Qishan noted that the domestic insurance sector still had great business potential due to the continued industrialization and urbanization of China and the growth opportunities that would provide. However, Wang warned that further reform and market innovation was now required to ensure that the industry develops in a stable fashion and that more Chinese citizens have access to appropriate protection, savings and investment products going forward. China expects to strengthen its supervision over the domestic insurance industry during the next three to five years in a bid to better guarantee the ability of its insurers to pay their obligations and compete in the international market. New mechanisms have and will be brought in to boost insurers' capital adequacy supervision, their risk management capacity to guard against systematic risks, and information disclosure to ensure they maintain good financial conditions and can pay off insurance claims on time. According to a Xinhua report, the Mainland government is particularly keen to accelerate reforms that would stimulate the state's pension, medical and liability insurance sectors. Insurance services related to agriculture, shipping and other technology-based businesses have also been prioritized to help Chinese firms compete on both a domestic and international scale. Shanghai may introduce a tax-deferred pension plan following Wang Qishan's remarks on insurance industry reform. The state-run Shanghai Securities News reported on Tuesday that a pilot scheme targeting the city's residents may start this year in a bid to give the local insurance sector a boost. According to the report, people enrolled in this scheme will be allowed to defer CNY500 (US$79) to CNY1,000 (US$160) in income tax each month if they spend that money instead on buying pension products from insurance companies. China Life, Ping An, China Pacific and New China Life have already been selected to participate in this scheme, which is forecast to generate CNY10 billion (US$1.6 billion) in premiums for the companies' Shanghai-based branches. 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 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. New China Life New China Life Insurance Co (NCI) has headquarters in Beijing and was established in 1996 It is a large national insurance company, with products including traditional protection products, bonus products as well as the products that have a strong financial management function. With sustained, healthy and harmonious development of the company, the brand value of NCI is a valuable asset.