China Life boosts bonus for policyholders

PUBLISHED : Saturday, 15 March, 2008, 12:00am
UPDATED : Saturday, 15 March, 2008, 12:00am

China Life Insurance tripled its payment of investment-linked bonuses last year, indicating strong earnings at the country's biggest insurance company despite rising volatility in the stock market.

The insurer paid 35.99 billion yuan (HK$39.48 billion) in such loyalty bonuses to policyholders, which represents at least 70 per cent of its investment income as required by the China Insurance Regulatory Commission. Payment was 11.89 billion yuan in 2006.

Policies eligible for the payment made up 70 per cent to 80 per cent of the insurer's new premium business last year.

'It is indicative of the group's investment returns in 2007, despite not a conclusive one,' said Dominic Chan, an analyst from CLSA. 'It tells us that the insurer's investment performance in the second half might not be as grim as we might have expected.'

Investment income has been the earnings driver at mainland insurers in the past two years, and it accounts for 35 per cent to 40 per cent of China Life's revenue.

That was despite an 11.6 per cent drop in the benchmark Shanghai Composite Index in the last two months of last year after peaking at 5,954.765 points on October 31. Even so, mainland stocks surged 96.66 per cent last year after a 130.43 per cent jump in 2006.

China Life recorded only 6.9 per cent year-on-year growth in life premiums last year, trailing the industry average of 24.5 per cent, as other insurers sold more investment-linked products.

Its market share also shrank, from 45.3 per cent to 42.8 per cent in the first three quarters.

'The increase in the bonus payout should help boost the premium income and market share this year,' said Nan Sheng, an analyst with UOB Kay Hian.

China Life had earlier estimated at least 50 per cent earnings growth last year, implying profit would be 21.58 billion yuan or more.

However, that slowed from a 160 per cent jump in the announced earnings for the first half, which analysts said was due to weakened investment returns particularly in the fourth quarter.

China Life's shares have plummeted 46.06 per cent in Hong Kong since November 1 as investors worry about its growth prospects because of lower investment returns.

Shares of Ping An Insurance (Group), the mainland's second-largest insurer, fell 46.27 per cent over the same period.

Bigger rewards

Loyalty bonus payment to policyholders in 2006 was 11.89 billion yuan

China Life Insurance sharply increased its bonuses for last year to, in yuan: 36b yuan