Market losses shake earnings at Ping An, China Life Insurance and peers as lockdowns hit riskier bets in investment pools
- Earnings at some of China’s biggest insurers fell by as much as 79 per cent as lower asset prices eroded returns from investment pools
- The battle to stamp out Covid-19 outbreaks and the ongoing restructuring of agency force are likely to cloud outlook, analysts said
Earnings at China Life Insurance, the second largest, slid almost 47 per cent to 15.2 billion yuan. Income from its pool of 4.72 trillion yuan of investment assets fell 27 per cent during the quarter.
“The big drop is pressuring their whole-year performance,” said Gigi Chen, insurance analyst at CMB International. “In the short term, the impact of the pandemic will still hurt. It will be difficult for life insurance businesses to develop as it relies on face-to-face sales by agents.”
Stock losses have deepened this year amid recession fears as Covid-19 lockdowns upended supply chains and forced factory closures. They added to a broad sell-off in 2021 caused by China’s crackdown on the tech sector. At the same time, bond prices also suffered amid a surge in debt defaults and risk premium.
The CSI 300 Index, which tracks the 300 largest listed companies in mainland China, had its worst three months since the third quarter of 2015. The Shanghai Composite Index fell 10.7 per cent, the most since the fourth quarter of 2018.
Ongoing measures to control the pandemic have provoked partial and citywide lockdowns in more than 50 municipalities and provinces across the country, putting a large chunk of national output at risk. The economic slowdown will continue to challenge the insurers’ performance, according to Industrial Securities.
“Their profit and revenue may continue to face pressure in the first half of this year,” analyst Zhang Bo said. “It will mainly depend on agents [restructuring], in addition to consumer sentiment because many citizens’ income has been affected during the pandemic.”
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China Pacific Insurance also experienced a setback as their earnings declined 36 per cent to 5.44 billion yuan, while People’s Insurance of China recorded a 13 per cent fall to 8.74 billion yuan. At New China Life, net profit sank 79 per cent to 1.34 billion yuan in the same period. They cited a steep pullback in equity markets for the weaker results.
A more cautious approach to reduce the impact of stock market volatility may be needed, as China Life Insurance placed more of its cash into relative safety of short to medium-term fixed income products.
“Insurers can increase the allocation of blue chip stocks and those with stable dividends, or invest in areas which are encouraged by the government, that may help them receive prudent returns,” Zhang of Industrial Securities said.
Another facet of the pandemic struggle comes in the need to enhance the efficiency of agency networks. Chinese insurers have reduced their agents by 30 to 40 per cent in 2021. Yet more sophisticated insurance products would require a higher-level workforce to boost sales and insurance premium.
China Life has dedicated more resources to attracting and nurturing high-performing agents and strengthened its management to transform its 846,000-strong agents into specialised, professional and digitalised teams, according to its stock exchange filing last week.
