China Life books 45.5pc profit plunge
China Life Insurance, the country's biggest life insurer, saw its net profit plunge 45.5 per cent last year to 18.33 billion yuan (HK$22.56 billion) as it made major investment losses in a wobbly capital market and saw slower growth.
The insurer now controls just 33.3 per cent of the life insurance market in the country, compared with more than 70 per cent in 2000.
Investment returns from financial assets swung to a loss of 11.2 billion yuan last year from a net profit of 15.8 million yuan in 2010 as the stock market continued to fall. The Shanghai stock exchange last year dropped 22 per cent while the Hang Seng Index lost 20 per cent.
Impairment losses on equity securities soared to 12.9 billion yuan from 1.78 billion yuan, while return on investment fell to 3.51 per cent from 5.11 per cent.
China Life also faced fierce competition in the industry, including from banks selling wealth management products.
Revenue dropped 3.9 per cent to 370.9 billion yuan as net premiums increased just 0.06 per cent to 318.28 million yuan, reflecting the slow growth. This was a far cry from 2010, when its net premium grew 16 per cent.
Net cash position dropped to 8.1 billion yuan from 11.7 billion yuan as the insurer saw a 25 per cent drop in net cash inflow from operations.
China Life said it planned to issue up to 38 billion yuan of subordinated debt to replenish its supplemental capital and raise its solvency ratio.
The insurer proposed a final dividend of 23 fen per share, against 40 fen previously.
Analysts said the insurance sector could benefit from a much anticipated monetary policy easing in the months to come, such as further cuts in the reserve requirement ratio of banks, which could boost the debt and equity markets and improve insurers' investment income.
But the jury is out on whether China Life's stock itself will stand to gain even if things look up for the market. Its shares have been on a downward spiral for two years now. From more than HK$38 per share in their golden days two years ago, they closed yesterday at HK$20.20, up 0.25 per cent on the day.
The stock has underperformed the stock market, rising just 1 per cent so far this year, while the Hang Seng Index has gained 12.12 per cent. Rival Ping An Insurance is up 8.55 per cent.
Rating agency Moody's expressed concern that China Life, which holds stakes in mainland banks, could be exposed to the credit risks faced by the banking sector, such as those posed by local government loans.