China Life Insurance

China Life warns of big dent in first-half earnings

PUBLISHED : Tuesday, 07 August, 2012, 12:00am
UPDATED : Wednesday, 15 August, 2012, 11:07pm


Related topics

China Life Insurance, the biggest life insurer on the mainland, yesterday warned its first-half net profit would be hit by a decline in investment yield and impairment losses.

The company said net profit for the first six months of this year would drop notably, but the percentage fall would not exceed that for the first quarter, when net profit tumbled 29.4 per cent from last year.

This means its net profit for the first half would be at least 9.15 billion yuan (HK$11.1 billion) - higher than market expectations.

According to Bloomberg, the median of profit forecasts by analysts for China Life is 8.45 billion yuan.

The insurer said in the announcement that a decline in investment yield and an increase in impairment losses resulting from the continued depression in the capital market were to blame for the profit fall.

In the first half of 2011, net profit at the insurer dropped 28.1 per cent to 12.96 billion yuan from a year earlier, while earnings per share fell 28.1 per cent to 46 fen.

The weak performance was due to higher-than-expected claims paid, slow growth in sales through bank distribution, and investment losses. Its gross investment yield also dropped 56 basis points to 4.5 per cent amid the volatile market conditions. Its full-year profit for 2011 declined 45.5 per cent.

Insurance companies have been banned from sending salespeople to bank branches to sell policies and products, a development that has been a key challenge for China Life.

The firm is also facing fierce competition, including from banks selling wealth management products. Other challenges include the need to provide more attractive products and to hire more agents.

Data from Xinhua showed mainland insurers realised 853.2 billion yuan of premiums in the first half of this year, 5.9 per cent more than a year ago.

China Life earlier said premiums in the first half dropped 5.17 per cent to 185.4 billion yuan from 195.5 billion yuan last year. But premiums grew 8.28 per cent in June to 31.4 billion yuan.

Reuters reported China Life had been struggling as low-margin products, increased competition and new rules had stalled business growth, while the volatile equity markets ate into its profits.

In 2000, the company commanded nearly 70 per cent of the mainland market, compared with just a third in 2011, according to Credit Suisse.

The firm will announce its first-half earnings on August 28.

Shares in China Life climbed 1.17 per cent to close at HK$21.55 yesterday.

9.15b yuan

China Life may book net profit for the first six months of at least this much, in yuan, which would beat market forecasts