China Construction Bank

China Life shares drop 11.5pc as profits plunge

PUBLISHED : Thursday, 25 August, 2011, 12:00am
UPDATED : Thursday, 25 August, 2011, 12:00am

China Life Insurance's shares plummeted yesterday because of disappointing half-year results and uncertain prospects for the mainland's insurance industry in the second half.

The company's shares closed down 11.55 per cent, or HK$2.65, to HK$20.30 and were the second most actively traded on the Hong Kong stock exchange yesterday. Ping An, another mainland insurance company, was the most traded stock as its shares fell 3.6 per cent.

Vice-president Liu Jiade said during an interim results briefing that the company would continue to look at the possibility of selling subordinated debt in Hong Kong to take advantage of lower costs.

China Life recently announced plans to sell up to 30 billion yuan (HK$36.6 billion) of subordinated bonds to help boost its solvency ratio to around 204 per cent, up about 40 percentage points compared to the end of June.

Liu said China Life's move to raise funds was just part of a larger industry effort, as Chinese insurance companies have raised a total of about 100 billion yuan and banks have raised about 500 billion yuan this year.

On Tuesday, the world's largest life insurer by market value posted a bigger-than-expected 28.1 per cent drop in net profit of 12.96 billion yuan compared with the same time last year. Revenue rose 5.6 per cent to 227.5 billion yuan.

Yuan Li, the company's new chairman, said that besides a volatile macro environment, China Life needed to make certain 'adjustments', though he was vague on what that might entail.

Analysts said China Life's weak performance was mainly due to higher-than-expected claims paid, slow growth in sales through bank distribution and investment losses.

'The results were disappointing,' said Sheng Nan, an analyst at UOB-Kay Hian.

'The first half was difficult for life insurers, especially for those highly dependent on bancassurance,' said Li Wenbing, an analyst at Bocom International, referring to using banks as the channel to sell insurance products.

Because of regulatory changes, insurance companies have been banned from sending sales people to bank branches to sell their insurance policies and products. China Life's new business from bank channels decreased 5.78 per cent compared to last year. Net premiums rose 6.1 per cent year on year to 195 billion yuan.

China Life also suffered from volatile market conditions in the first half. Gross investment yield dropped 56 basis points to 4.5 per cent in the first half compared with last year. The company booked an equities impairment loss of 3.6 billion yuan through its profit and loss statement, and an additional loss of 19.5 billion yuan through shareholders' equity.

The company cut down on its holding of bonds and stocks and increased its investment in deposits, cash and cash equivalents.

Bonds now make up about 43 per cent of China Life's investment and equities account for about 13 per cent.