China’s listed insurance firms could benefit as government crackdown on risky products hits rivals

China Life Insurance, Ping An Insurance, China Pacific Insurance and New China Life are less exposed to short-term life policies and may face less competition as the clampdown hits income at rivals like Anbang

PUBLISHED : Wednesday, 06 September, 2017, 7:30pm
UPDATED : Wednesday, 06 September, 2017, 10:52pm

China’s clampdown on aggressive selling of risky short-term life insurance policies could benefit the big four listed firms, China Life Insurance, Ping An Insurance, China Pacific Insurance and New China Life, because they are less exposed to those products, analysts said.

The insurance regulator has since last year moved to curb sales of such policies, which are essentially wealth management products, by companies including Anbang Life Insurance and Foresea Life Insurance, who used the proceeds to fund risky investments. Authorities feared the practice would add systemic risks to the financial sector.

“Big listed companies are benefiting from tightening regulations on aggressive players like Anbang and Foresea,” Tang Shengbo, head of Hong Kong and China insurance and non-bank financials research at Nomura, told a media briefing in Shanghai on Wednesday, citing improving profitability partly because of less competition.

He also saw the possibility of more consolidation or takeovers in the industry, noting that traditional heavyweights could target smaller players, although they would not go after the likes of Anbang and Foresea, which are already big and could be exposed to further regulatory tightening measures.

China Life, laggard in nation’s assurance industry, is expected to catch up in the second half

Other analysts noted that the clampdown had affected premium incomes at the companies under scrutiny.

Anbang Life’s total premium income fell 24 per cent in the first seven months of this year, while its sales of short-term universal life products, which are more like wealth management products than regular insurance policies, slumped 98 per cent. Foresea saw a 64 per cent drop in premium income and Evergrande Life’s fell 10 per cent.

“Insurance mainstays enjoy a marked boost from the regulatory measures that are steering the industry back to its core and original mission of offering security,” said Hong Jinping, an analyst at Hua Chuang Securities. “We expect them to post improving profits despite an industry-wide premium growth slowdown.”

Longer term, China’s insurance industry still enjoys great opportunities as companies’ wealth accumulates and the country’s economy grows.

Listed insurers reported better-than-expected interim profits, bolstered by improving investment returns and a rise in sales of traditional insurance products, said Zheng Jisha, an analyst at China Merchants Securities, in a research note.

In the first six months of this year, the combined net profits of the four listed insurers rose to 65.4 billion yuan (US$10 billion), up 6.9 per cent year on year. That was better than market estimates of no growth in profit and much improved from a drop of 36 per cent in the same period a year ago.