More profitable policies bolster insurers' income
Mainland insurers have emerged as top gainers during the recent stock market rally, enjoying an increase in higher-margin agency business that could boost second-half earnings.
Slower sales of investment-linked policies, which had been a major driver of new insurance premiums at the mainland's top three life insurers, pulled overall growth in premium income down to 6.4 per cent over the first half, against 7.6 per cent in the first five months of the year.
But those slower growth figures mask positive adjustments that have taken place at insurers' underwriting business, analysts say.
The worst hit by the slowdown was China Life Insurance, the country's largest insurer. New premiums in the first half declined 5.16 per cent to 172.7 billion yuan (HK$196.25 billion), extending a slowing trend that began in October last year.
But out of the 327.6 billion yuan in premiums collected in the first quarter, 105.49 billion yuan came from agency forces, it said, a 15.4 per cent increase on the same period last year. Growth of new regular-type premiums also outpaced overall new premium growth by 26.2 percentage points at 28.8 per cent.
Insurance policies sold through agency channels usually have regular-type premiums and are considered to have higher margins than investment-type products owing to their single-premium nature.
'Slower and negative premium growth is expected for China Life in the first half and even in the third quarter,' said Ivan Li Sing-yeung, an analyst with Kim Eng Securities.
'But the adjustment process has started to yield good margins to their underwriting profit.'
Most analysts expect insurers' underwriting performance to stabilise in the year ahead as they go back to basics and sell more traditional life and universal insurance with more savings elements.
'The growth rate of the Chinese insurance industry may slow compared with previous years,' said Andrew Cainey, the head of financial services at Booz & Co, Greater China.
'But as they lower their growth expectations, companies will pay more attention to improving operational fundamentals and risk-return profiles, both for underwriting and investment.'
Insurers comprise the mainland's largest group of institutional investors, and their earnings this year will also be helped by a 75 per cent rally in the domestic stock market so far this year.
According to the China Insurance Regulatory Commission, mainland insurers boosted their exposure to equity investments during the second quarter. Bank deposits and bond investments, by contrast, shrank during the period.
Meanwhile, asset reflation is raising insurers' investment returns and increasing the demand for regular-premium products, according to a recent ABN Amro report.