Forget about China Life Insurance's record income of 19.4 billion yuan (HK$21.52 billion) from equities last year, which it made even though it prudently kept stock holdings at 23 per cent of total assets, below the regulatory ceiling of 25 per cent.
Also forget that for the same period, its total investment income of 44.02 billion yuan rose to 40.89 per cent of revenue from 24 per cent, leaving premium income from its core insurance business to account for just 59.11 per cent.
Until the 10th month or so last year, its heavily invested A-share market was on an upswing. But since then, not just the domestic but other stock markets have headed south.
Although government bonds and debt instruments still may yield considerable returns, it is only natural that Beijing-based China Life, the country's largest underwriter, has reduced its reliance on investments as an income stream.
In other words, last year's net profit increase of almost 95 per cent to 38.88 billion yuan is history. Investors are now asking: What is China Life doing to strengthen its business model?
Now that global markets appear to be heading for a meltdown and even debt markets have turned vulnerable, will China Life be able to raise premium income to make up for lower returns on investments?
With only one quarter into the year, answers to these questions are beginning to emerge. In the first two months of this year, premium income actually expanded 30 per cent from a year ago. But that was mainly due to a significant increase in participating policies which, by nature of their paying dividends, earn lower margins than traditional life policies.
Citigroup said margin pressure was rising for China Life as policyholders demanded better returns on insurance policies. Moreover, the insurer will see funding cost pressures rise this year.
Credit Suisse echoed Citigroup's view, wondering if sharp growth in premiums could be sustained this year as bank deposit rates also rise to higher levels. Needless to say, the 5 per cent decline in sales agent numbers last year also is cause for concern.
As for investments as a source of income, the basically conservative management declared last week in a post-results briefing that it would offload some stocks to switch to bonds and fixed deposits this year. This was despite income from debt securities and government bonds, while making up about 52 per cent of its investment portfolio last year, contributed just 7 per cent to total revenue, compared with equities, which weighed less in the composition but accounted for 30 per cent.
Given that incomes from both premiums and investments may be compromised, where does China Life seek a much needed catalyst to maintain growth?
Asset management is a logical income stream for most insurers. For China Life, however, this line and the related corporate annuity business were established just last year; it will be some time down the road for profits to materialise.
'China Life is still very much a 'life-only' insurance company,' a Bear Stearns analyst wrote in his research report. 'We see very limited operational catalysts for the company until at least 2010. Over the next three years, we don't expect non-life units, such as annuity and property and casualty businesses, to contribute more than 5 per cent of revenue.'
There is no question the conservative approach of the state-owned insurer has deprived shareholders of higher growth potentials.
'Management has shown an ambivalent attitude in further implementing strategy,' said Ivan Li Sing-yeung from Kim Eng Securities. 'No doubt the industry trend is to move towards diversification, and China Life trails Ping An in this regard.'
Others argued that being cautious may not be a bad idea when market conditions are bumpy this year.
'The political nature of the company explains why the management is moving with reservation in its investment and business development,' said Louis Wan, the chief investment officer of Pride Investment Group.
In what might be an ominous sign, all mainland banks and insurers have suffered losses on their overseas acquisitions made last year. Ping An Insurance (Group), for one, has booked a loss of 980 million yuan from its 20 billion yuan investment in Dutch-Belgium financial giant Fortis.
China Life, for its part, ventured overseas for the first time last week, investing US$300 million to buy a stake in the initial public offering of Visa, the global card network provider. The investment has proved rewarding so far. Visa shares rose about 50 per cent on debut last Wednesday.
Given such dynamics, will the country's No1 insurer continue to play safe to protect capital instead of pursuing higher returns for shareholders?
Staying at the top certainly takes initiative and ingenuity. In the final analysis, perhaps competitive forces more than internal resolve will dictate which direction China Life goes.