Mainland insurers are poised for profit growth in the second quarter, with insurance claims after the recent Yaan earthquake not expected to be high, while investment returns and premium income are likely to improve.
Minsheng Securities estimated that insurance claims after the Yaan earthquake in Lushan county, in Sichuan province, on April 20 would be no more than 100 million yuan (HK$125 million), while Guotai Junan Securities forecast that the claims would be less than 200 million yuan, far lower than the 1.66 billion yuan claims after the earthquake in Wenchuan, also in Sichuan, in 2008.
The insurance coverage in the quake area was low, Zhang Lei, an analyst with Minsheng Securities, said in a research report.
If the economic loss for the Yaan earthquake was less than 10 billion yuan, the insurance claims would be up to 100 million yuan, Zhang said. The economic loss for the Wenchuan earthquake was 845.1 billion yuan.
The insurance density in the area, measuring premiums per capita, was only 761.17 yuan last year, lower than the average of 1,018 yuan in the province, while the insurance penetration rate was 2.96 per cent, against an average of 3.43 per cent in the province, Zhang said.
The Yaan tragedy would have put pressure on property and casualty insurers such as Ping An Insurance, PICC P&C and China Pacific Insurance, but the impact would not be material, said Chen Xingyu, an analyst with Phillip Securities.
Despite the limited impact estimated by analysts, shares in mainland insurers dropped early last week on worries about the potential claims. However, investors' confidence was restored after the companies later reported better-than-expected first-quarter results.
China Pacific Insurance's first-quarter earnings jumped 241 per cent from last year, China Life Insurance posted a 79 per cent increase and Ping An reported a 21.9 per cent rise. The strong earnings growth was mainly boosted by better investment returns and lower impairment losses, thanks to economic recovery.
Chen said the performance of mainland insurers had started to pick up since the fourth quarter of last year after a rebound in the nation's stock market, which helped investment returns.
He said he expected insurers' earnings to continue to improve in the second quarter as the share market had seen signs of recovery. "The fundamentals of the share market remain sound despite the volatility after the earthquake," he said.
Zhang said the premium income of insurers was likely to improve as the competition from high-yield products offered by banks would diminish.
The banking regulator had strengthened supervision over banks' wealth management and trust products, he said.
Some investors opted for banking products rather than insurance products for higher returns, which had caused a slowdown in premium income growth, he said.