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Profit growth at China Life is estimated to be as high as 120 per cent year on year. Photo: Reuters

Strong profit growth forecast for Chinese life insurers

Weaker earnings growth predicted for non-life players due to rising claim costs and the increase in sales of unprofitable car insurance

Kwong Man-ki

The mainland's life insurers are poised to report robust growth in profit last year on the back of strong investment income, but the value of new business for most firms is expected to have remained stagnant amid fierce competition.

The reporting season for mainland insurers will begin on Thursday, when Ping An Insurance is set to release its results.

The recovery in capital markets last year bolstered growth in life insurers' investment income, Phillip Securities analyst Chen Xingyu said, forecasting respectable profit increase.

"The strong growth rate was also because of a low-base effect as mainland insurers' profits in 2012 were hit hard by weakness in the capital markets that hurt their investment income," Chen said.

Growth in premium income was stable as economic momentum improved and sales channels became more diversified, he said.

Leading players such as China Life Insurance and China Pacific Insurance were expected to post profit growth of 80 to 100 per cent from the previous year, Chen said.

However, non-life insurers' profit growth was weaker, because of rising claim costs and the increase in sales of unprofitable car insurance, he said.

Earnings momentum in the insurance sector improved last year compared with a year ago, said Sun Ting, an analyst with Shenyin Wanguo Securities.

"Life insurers were able to maintain stable growth in premium income in 2013," she said.

China Life, the mainland's largest life insurer, said premium income grew 1.23 per cent last year to 326.7 billion yuan (HK$413.7 billion), and Ping An said its premium income increased 13.6 per cent.

Shenyin Wanguo forecast China Life's profit would surge 120 per cent to 24.3 billion yuan and Ping An's earnings would jump 40 per cent to 28.1 billion yuan.

However, the growth in value of new business, a measure of profitability of new policies, was expected to be stagnant, Sun said.

"Bancassurance was the main channel for the sales of new policies, but the profit margins of bancassurance were low," Sun said.

The high-interest-rate environment and the difficulty in adding agencies as competition mounted also limited the sales of new policies.

Shenyin Wanguo expected the value of new business at China Life to have remained unchanged from the previous year and new business growth to be 14 per cent at Ping An and 6 per cent at China Pacific.

Brokerage firm China International Capital Corporation also forecast slow growth in new business value, expecting Ping An to outperform its peers with an 11 per cent gain and China Life to post a 2 per cent increase.

Investment yields were expected to improve, CICC said, estimating China Life's total investment return reached 4.6 per cent last year, compared with 2.9 per cent in 2012, and Ping An's return increased to 4 per cent from 3.4 per cent.

China Life would outperform its peers in earnings growth, with a 119 per cent surge, CICC said. It forecast a 58 per cent jump at Ping An.

Tang Shengbo, an analyst with CICC, expected the value of new business to grow in high single-digit percentages this year as agencies stabilised and upgraded products contributed to improved margins.

This article appeared in the South China Morning Post print edition as: Life insurers see profits rebound on investments
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