Value and stable growth top Chinese insurers' agenda

Surge in premium income is likely to ease as industry players pursue long-term profitability while diversifying into cost-saving sales channels

PUBLISHED : Saturday, 12 April, 2014, 12:59am
UPDATED : Saturday, 12 April, 2014, 1:42am

Strong premium growth of the past is likely to ease this year as mainland insurers turn their focus from volume to value and pursue new strategies to boost long-term profitability.

When outlining this year's development strategy, Yang Mingsheng, the chairman of the mainland's largest insurer China Life Insurance, summed up the company's goal as "prioritising value, stabilising volume".

Ma Mingzhe, chairman of the No2 player, Ping An Insurance, was more elaborate when he said: "Technology can help integrate finance with people's daily life, and internet finance will strengthen sales channels."

The two were pointing to the new direction of the latest round of transformation of the insurance sector in terms of product mix and sales channels.

"The transformation is positive for Chinese life insurers amid competition from trust and wealth management products," said Sally Yim, senior credit officer at rating agency Moody's Investors Service.

"As insurers aim to boost sales of more profitable products, substantial growth in premium income will be unlikely, but the strategy switch will benefit long-term profitability."

Last year, China Life posted a 12.2 per cent gain in first-year regular premium with a payment period of 10 years or more and scaled back its less profitable single-premium business.

Analysts at Ping An Securities said the adjustment boosted its new business value, a gauge of the profitability of new policies, despite limited overall premium growth.

Life insurance premiums rose 7.86 per cent to 1.07 trillion yuan (HK$1.3 trillion) last year, an improvement from a 2.4 per cent gain in 2012, said the China Insurance Regulatory Commission.

Chen Xingyu, an analyst with Phillip Securities, said the growth in premium income was expected to be stable while investment income was unlikely to be surprising after a strong rebound last year. The transformation could also be focused on the insurers' cost control measures to improve profitability, he added.

"Developing internet finance is an important step to their transformation, which will build more cost-effective sales channels," Chen said.

Internet finance would be a new profit driver for the insurers, Haitong Securities analysts said in a report. "As the online sales channel is more cost-effective, Chinese insurers have room to reduce policy prices," they said.

Mainland insurers' dependence on bancassurance, which result in higher fees and lower margins, could be reduced in the long term, the analysts said. Under the new bancassurance rules, a bank is limited to co-operate with up to three insurers in selling policies. That would hinder premium growth and diversification in sales channels was therefore crucial, they said.

Yim said cost controls would be particularly important for property and casualty insurers as the liberalisation of premium rates for car insurance was expected in the second half of this year.

The profitability of the car insurance business has been shrinking because of increasing claim costs. The situation was likely to worsen as insurers faced pressure to cut prices following the liberalisation, Yim said.

"Big insurers will still have an advantage of scale but continuous efforts to tighten costs will be necessary," she said, referring to cost-saving channels such as online sales.