China Life, laggard in nation’s assurance industry, is expected to catch up in the second half
Listed life insurers to see solid growth after regulators crack down on competitors selling short-term policies
China Life, the country’s largest life insurer, is due to announce interim results on Thursday and although the group has lagged behind peers in growth in recent reporting periods, analysts expect a solid performance for the first six months.
China’s life insurers are expected to prove good growth as their product mix improves, and listed players are capturing market share after platform insurers like Anbang and Foresea faced curbs by regulators for selling aggressive short-term policies, said HSBC analysts in a note issued on Tuesday.
The analysts estimate China Life’s net profit to shareholders to reach 12.7 billion yuan (US$1.9 billion) for the first six months, up 21.8 per cent year on year, driven by 20.7 per cent growth in new business value.
“Ping An and CPIC (China Pacific Insurance) continue to deliver sector-leading growth, China Life and PICC Group are lagging, but listed names should deliver decent life new business value growth due to improving business mix,” they wrote in the note.
Ping An Insurance announced on Thursday that net profit to shareholders had risen 6.5 per cent in the first half to 43.4 billion yuan. When excluding a 9.5 billion yuan gain from internal restructuring in the first half of 2016, profit growth was 38.8 per cent year on year.
Analysts with JP Morgan were more bullish about China Life, estimating a 41 per cent growth to boost net profit to 14.6 billion yuan, according to a recent report.
“We advise keeping exposure in the sector via the diversified conglomerate (Ping An Group) and through pure life shares,” they wrote in a note issued on Monday, saying they “remain overweight on China Life”.
“For the life sector, beyond earnings recovery expectations in 2017 to 2019, strong product mix upside, pushed by the government reform agenda combined with rising household demand for protection and critical illness coverage, and meaningful turnaround in the liability reserve structure, should help drive higher shareholder returns,” the report said.
Daiwa analyst Leon Qi said in a note issued earlier this month that new agency business growth would be around 20 per cent and that there would be a slight improvement in new business value margin for China Life, given it was primarily pushing 3.5 per cent guarantee rate products in 2017 compared with 4.025 per cent in 2016.
Industry-wide life premiums grew by 26 per cent in the first half of 2017, lower then the 45 per cent growth recorded in the first six months of 2016, according to the latest data released by the China Insurance Regulatory Commission (CIRC).
But growth was largely dragged down by the contraction of investment-related short term policies, particularly wealth management product style universal life policies.
In the first half of this year investment-related life insurance premiums, including universal life insurance, shrank 58 per cent to 364.8 billion yuan, according to data from the CIRC.
According to its filing to the Hong Kong stock exchange in July, the accumulated premium income of China Life for the period from January 1, 2017 to June 30, 2017 was about 346.2 billion yuan.
Analysts from HSBC said important issues to watch were new business growth of life insurance, the mix of life products, agent productivity, integration with China Guangfa Bank (in which China Life holds 44 per cent stake), and investment yield.