China Life interim profit plunges 67pc on weak investment income

Net premiums grew 23.93 per cent while new business value soared 50.35 during the first six months

PUBLISHED : Thursday, 25 August, 2016, 9:10pm
UPDATED : Thursday, 25 August, 2016, 10:57pm

China Life, the nation’s biggest insurer by market value, said on Thursday that falling interest rates and capital market volatilities were behind a 67 plunge in profit for the first half of the year.

Net profit declined to 10.4 billion yuan (HK$12.12 billion), the company said in a filing to the Hong Kong stock exchange, which was in line with the expected profit drop of 65 to 70 per cent outlined in its results warning issued on July 29.

Gross investment income was down 49.1 per cent year on year to 50.84 billion yuan.

Net premiums earned in the first six months grew by 23.93 per cent to 284.24 billion yuan. The new business value (NBV) of life insurance grew to 28.02 billion yuan, up 50.35 per cent year on year.

The China Insurance Regulatory Commission (CIRC), the industry watchdog, said in early August that industry profits fell 54.05 per cent in the first half of the year to 105.6 billion yuan, mainly due to the high base during the same period last year.

Insurance companies had ridden the leverage-based bull run in mainland A-shares and locked in profit before the market crashed in June last year.

The baby boomers, as they accumulate wealth, would shift towards protection products, which offer higher margins to life insurers
Sanford C. Bernstein analysts

“The average funding cost of China Life is on relatively faster rise compared to peers, because it owns more traditional products and a growing proportion of universal life insurance products that carry higher interest rates, while its investment yield does not stand out. So we are a bit concerned about the sustainability of the spread between cost of liabilities and asset yield,” said Dayton Wang, an analyst with Guotai Junan International in Hong Kong, who rates China Life as “neutral”.

In a recent report, Sanford C. Bernstein analysts led by Linda Sun-Mattison said they were positive on China’s life insurance sector based on the belief that premium growth in China, Hong Kong and Asia Pacific would outpace GDP per capita growth.

“The baby boomers, as they accumulate wealth, would shift towards protection products, which offer higher margins to life insurers...[while] a prolonged period of stagnant economic growth would

reduce premium growth and delay the demand shift towards protection products from savings,” the report said.

China Life said in June it would invest US$600 million in China’s car hailing app Didi Chuxing.

Separately, Ping An Insurance, the country’s second-largest insurer by market value, posted an 18 per cent rise in first-half net profit, primarily from a one-off gain in its internet finance business.