China Life Insurance, the mainland's largest insurer, will reward policyholders by doubling the all-in returns offered on its bonus-linked policies to a minimum 8 per cent for last year, according to sources.
The move is aimed at redistributing some of the investment gains made by the insurer on the mainland stock market that are expected to push the group's profit to another record high.
For the nine months to September, China Life reported a 46 per cent increase in net assets per share in its statement to the Hong Kong stock market - a return of 14.6 per cent that helped boost net profit for the period to 24.69 billion yuan.
China Life pays customers an annual loyalty bonus and in 2006 the all-in yield (standard dividend plus bonus) was pegged at 4 per cent. That will be raised to 8 per cent for last year.
Policies offering bonus payouts of that kind make up about 70 per cent of all new premium business written by the group.
'Management will announce the bonus dividend yield to the public soon. That should be no less than an all-in 8 per cent,' sources close to China Life said. 'It will be a record return due to the red-hot performance of the mainland stock market last year.'
Mainland stocks had another sterling year in 2007, with the benchmark Shanghai Composite Index surging 96.66 per cent after a 130.43 per cent jump in 2006, making it the world's best-performing major benchmark index.
Mainland insurers market three major types of insurance products. Dividend insurance and universal insurance both guarantee a minimum return, with a top-up bonus depending on the investment performance.
The China Insurance Regulatory Commission states insurers can only invest up to 20 per cent of dividend insurance premiums in equities.
By contrast, investment-linked insurance does not offer guaranteed returns and has the highest exposure to the investment portfolio that policyholders choose.
'The rising returns to policyholders should help boost the premium income and market share of China Life,' said Zhang Xi, an analyst at China Galaxy Securities.
Last year, mainland insurers made a windfall selling investment-linked products. The products, despite offering attractive returns, are usually single-premium which do not guarantee stable revenue to insurers.
Ms Zhang said that as the equity market became more turbulent this year, traditional insurance products would regain market attention and that should benefit China Life, which was more focused on high-margin products such as dividend insurance and universal insurance.
In the first three quarters of last year, net premium income growth for China Life slowed to 6.7 per cent while its market share dropped from 45.3 per cent to 42.8 per cent.
But Ms Zhang expected its market share to expand this year. 'Smaller insurers like New China Life Insurance will lose their edge in selling investment-linked products and give way to China Life to resume its market leading position,' she said.