Chinese life insurers to post solid gains

Mainland players seen benefiting from higher premium income and investment yield while property and casualty sector suffers setback

PUBLISHED : Friday, 23 August, 2013, 12:00am
UPDATED : Friday, 23 August, 2013, 5:54am

Mainland life insurers are expected to report solid profit results for the first half of the year on the back of strong premium income growth and rebound in investment yield.

However, not all is good news. A deterioration in profitability in the property and casualty insurance market is expected to dent the earnings of non-life insurers.

China Life Insurance, the country's largest life insurer, was expected to outperform its rivals with a 52.4 per cent increase in profit, CCB International analyst Kenneth Yue said in a research report.

Investment yield was estimated at 4.4 per cent, the highest among the seven Hong Kong-listed mainland insurers, Yue said.

The insurer announced last month premium income growth of 9.2 per cent for the January-June period from a year ago.

China Taiping Insurance, the mainland's fifth-largest insurer, would report 47.8 per cent higher profit, buoyed by a 60 per cent surge in premium income and a 3.01 per cent investment yield, CCBI said.

China Pacific Insurance, the country's third-largest player, would see earnings climb 50 per cent, with premium growth of 8.9 per cent and an investment yield of 3.47 per cent.

Of the remaining four insurers, net income was expected to grow 7.4 per cent at Ping An Insurance and 29.9 per cent at New China Life Insurance. However, PICC Group would see a profit decline of 7.7 per cent and its unit PICC Property and Casualty would record a 28.3 per cent drop.

Despite a solid premium growth of 14 per cent for PICC Property and Casualty, the rising combined ratio in the property and casualty insurance market took a toll on the company's profitability, Yue said.

A ratio below 100 per cent means an insurer is receiving more in premiums than it is paying out in claims.

"The rising combined ratio of the entire property and casualty sector driven by intense competition and high claim inflation remain a concern," Yue said, forecasting the insurer's combined ratio to rise to 95.3 per cent from last year's 95.1 per cent.

Shanghai-based Shenyin Wanguo Securities also forecast that the combined ratio of Ping An's property and casualty unit would increase to 95.5 per cent from 93.1 per cent in the same period last year, while the ratio for China Pacific Insurance's unit would climb to 97.5 per cent from 94.2 per cent.

"The combined ratio of property and casualty insurers has been on the rise since the second half of last year," Shenyin Wanguo analyst Sun Ting said in a report.

Besides competition, Sun said the increase in claims related to natural disasters was one of the reasons.

Shenyin Wanguo is more optimistic on profit growth of the four insurers listed on the mainland, forecasting gains of 74.4 per cent for China Life, 93.8 per cent for China Pacific Insurance, 65.7 per cent for New China Life and 27.1 per cent for Ping An, fostered by a rebound in investment yields and a lower base of comparison last year.

The insurers were hit hard by turmoil on the mainland share market last year that depressed their investment yields.

According to Shenyin Wanguo, investment yield last year dropped to 3.4 per cent from 3.6 per cent in 2011.

The figure rebounded in the first five months of this year to 5.2 per cent.

Sun also said that growth in new business value, a measure of the present value of future business for life insurers, was expected to be better than expected.

However, analysts have said that the recent removal of the interest rate cap on life insurance policies would put pressure on new business as intensified competition might trigger a price war.

Yue said the pricing deregulation could lead to short-term pain if unhealthy price competition occurred.

But the precise effect on traditional life insurance products would not be known until the insurers released their results for the full year, he said.