China Life net dives 61pc as stock returns decline
Quarterly profit drops to 3.5b yuan on fall in investment gain
China Life Insurance, the mainland's largest insurer, has announced an unexpected 61 per cent dive in first-quarter profit as its investment returns took a hit from the mainland's tumbling stock market.
Net profit for the three months to March fell to 3.47 billion yuan (HK$3.86 billion) from 8.89 billion yuan a year earlier based on mainland accounting standards.
Turnover rose 18.4 per cent to 111.07 billion yuan.
China Life posted the profit slump without previous warning. In most cases, A-share listed companies should flag investors beforehand if their profits fell or rose more than 50 per cent.
Investment returns at China Life and other insurers are under pressure as the domestic stock market loses steam after almost doubling last year. The Shanghai Composite Index has lost about 35 per cent this year, making it one of the worst performers in the world.
'Equities are actually not a large part of Chinese insurers' portfolios, but they ended up taking a disproportionate role in companies' reported earnings because the market was so heated last year,' Howard Wang, the head for Greater China at JF Asset Management, was quoted as saying by Bloomberg. 'If A shares resume a more normal path, that would allow investors to look past factors like slowing premium growth.'
China Life's investment income fell 9.9 per cent to 15.09 billion yuan, from 16.76 billion yuan. Adding to the gloom was the 5.51 billion yuan loss it booked from the drop in value of its investment portfolio, against a 3.9 billion yuan gain a year earlier.
'Confronted with current fluctuations in the A-share market, insurance companies should adhere to a long-term value investment philosophy and show confidence in the long-term development of China's economy,' China Insurance Regulatory Commission assistant chairman Yuan Li said earlier.
Mainland insurers earned 31.13 billion yuan from investments in the first quarter, with an average yield of 1.2 per cent, the insurance watchdog said last week.
At the end of March, outstanding investment funds were 2.7 trillion yuan, 50 million yuan less than on January 1. Of this, 49.4 per cent or 1.3 trillion yuan was invested in bonds, 26 per cent in bank deposits and 13.1 per cent in equities, CIRC data shows.
The regulator is seeking State Council permission to let domestic insurers invest more in property and infrastructure projects as part of a broader drive to reduce their exposure to equities in a weak market.
Last month, chief investment officer Liu Lefei said China Life would rejig its investment mix in favour of fixed-income assets after a 76.5 per cent surge in investment income boosted net profit almost 100 per cent to 38.88 billion yuan last year.
Investment income contributed more than 40 per cent of China Life's total revenue last year, compared with just 20 per cent a year earlier.
Equity holdings made up about 23 per cent of the insurer's investment portfolio last year, with bonds, term deposits and cash forming the remainder. It did not give such details in its first-quarter profit statement.
Ping An Insurance (Group), the mainland's No2 insurer that had 24.7 per cent of its 2007 portfolio invested in equities, was also expected to report a drop in first-quarter profit on Wednesday, analysts said.
JP Morgan said for every 10 per cent drop in the A-share market, profit would fall 5.3 per cent for China Life, 7.9 per cent for Ping An and 7.8 per cent for PICC Property and Casualty, China's top non-life insurer.