Insurers' first-half earnings seen doubling

PUBLISHED : Tuesday, 21 July, 2009, 12:00am
UPDATED : Tuesday, 21 July, 2009, 12:00am

Earnings of the mainland's insurance companies might have doubled in the first half because of higher investment income and lower funding costs, the industry's regulator said.

Total profits of about 26.1 billion yuan (HK$29.61 billion) were expected to be announced for the six months to June, the China Insurance Regulatory Commission said yesterday on its website.

Shares of the top three insurers have surged since last week, while the mainland stock market has gained more than 75 per cent so far this year.

As the largest institutional players in the domestic stock market, mainland insurers are benefiting from the stunning rally that began in March.

Ping An Insurance (Group), the mainland's second-largest, jumped 10.27 per cent to HK$65.50 yesterday. Bigger rival China Life Insurance rose 6.49 per cent to HK$32.80. China Pacific Insurance (Group) added 0.87 per cent to 29.06 yuan in Shanghai.

'The guidance [by the CIRC] is conservative, given that mainland insurers made hefty investment losses last year,' said Tony Tong, an analyst at China Everbright Research. 'As the mainland stock market continues to soar, so do insurance companies, as they are very leveraged to it.'

Investors in the mainland market held the second most bullish view in the Asia-Pacific last quarter, according to the latest survey by ING. Its reading for the mainland jumped to 158 from 124 on a scale of 0 to 200.

ABN Amro expects China Life to report a 28.3 per cent rise in earnings to 27.29 billion yuan for the full year, while Ping An is expected to see yearly earnings up more than 48 times to 12.91 billion yuan - the company had to make huge provisions last year for its ill-fated investment in Fortis.

'The industry is well placed for growth [given] the current macro policy backdrop,' said the brokerage in a recent report. 'Reform initiatives should improve underlying profitability, and investment liberalisation should fit sustainable valuations in the longer term.'

The CIRC said the moderately loose monetary policy had benefited insurers by lowering funding costs of longer-term insurance policies.

While demand for general insurance is propped up by the country's infrastructure stimulus programme, the regulator said the industry needed to be mindful about the chances of such demand being sustained in the second half.

Total invested assets were valued at 3.4 trillion yuan at the end of last month, a 10.4 per cent rise from a year earlier, the CIRC said.

Stocks and equity mutual funds accounted for 16.6 per cent of the invested assets, up 3.3 per cent from the start of the year. Bond investment accounted for 50.2 per cent, down 7.7 per cent.

The CIRC also said a total of 598.61 billion yuan in premiums were collected in the first half, an increase of 6.6 per cent, less than the 19 per cent rise in the first quarter.