March 29 (Bloomberg) -- Ping An Insurance (Group) Co. and China Life Insurance Co., China's two biggest insurers, may say second-half profit rose more than 20 percent on investment gains and higher policy sales.

Ping An, based in South China's Shenzhen, may report net income climbed 27 percent from a year earlier to 2.05 billion yuan ($260 million). Beijing-based China Life, its larger rival, may say profit rose 22 percent to 5.31 billion yuan. The figures were derived by subtracting first-half results from the median of 2005 estimates from nine analysts surveyed by Bloomberg News.

The companies benefited from increases in bond and stock prices in the Shanghai and Shenzhen markets. China Life and Ping An, which control 60 percent of the country's life insurance market, also booked higher income from selling more profitable policies such as long-term individual life cover.

``Earnings growth is pretty good for the insurance companies because of better investment income,'' said Zhou Guang, a Beijing-based analyst at China International Capital Corp. ``Whether it's bonds or equity, the gain flows directly to the bottom line.''

Ping An will report after the market close today. China Life hasn't said when it will post earnings.

Chinese insurers have been selling more policies to the country's 1.3 billion people and their businesses, riding on China's economic development, increasing household income and fading of the cradle-to-grave welfare system. They've also been given scope to invest in new areas such as infrastructure to boost returns.

Investment Gains

The Shanghai T-Bond Index, which tracks government bonds, gained 3.5 percent in the half as inflation remained subdued in China, compared with a 1.4 percent increase a year earlier. Ping An held 137 billion yuan in bonds, or 62 percent of its investments, and China Life had 206 billion yuan in bonds, or 47 percent of its total, as of June 30.

The Shanghai Composite Index, which covers yuan-denominated A shares and foreign-currency B shares, rose 7.4 percent in the half from a loss of 9.5 percent a year earlier. The Shenzhen Composite Index added 6.9 percent in the same period, against a decline of 10.9 percent a year earlier. Ping An had 3.8 percent of its investments in stocks and China Life 4.7 percent.

The insurance market grew 14 percent to 222 billion yuan in the six months through Dec. 31, according to the China Insurance Regulatory Commission.

Ping An's premiums grew 9 percent in 2005 to 71.5 billion yuan and China Life's rose 7.5 percent to 161 billion yuan, based on Chinese accounting standards. The two companies report their results using Hong Kong or international accounting rules. A half-year comparison isn't available because the Chinese regulator didn't start giving out a breakdown on premiums by companies until August 2004.

PICC

Ping An's stock has gained 37 percent so far this year, while China Life's has climbed 44 percent. Their advances exceed the 24 percent increase of the Hang Seng China Enterprises Index, which tracks the performance of state-owned Chinese companies listed in Hong Kong, and the 17 percent gain of their peer PICC Property & Casualty Co.

PICC, China's largest non-life insurer, may report a second-half profit of 532 million yuan from a loss of 755 million yuan a year earlier, according to the median estimate of eight analysts surveyed by Bloomberg News.

``PICC delivered terrible results in the second half of 2004,'' said Bill Stacey, a Hong Kong-based analyst at Credit Suisse Group. ``They'll turn that around very substantially.''

The Beijing-based insurer had an investment loss of 948 million yuan in 2004 led by declines in equities.

Growth Potential

The company's market share fell to 51 percent as of Dec. 31 from 58 percent a year earlier after rivals cut prices to win business. PICC's premium income, calculated by Chinese accounting rules, rose 1 percent to 66 billion yuan last year, less than the 13 percent growth of the non-life market.

The slowdown in premium growth means the company isn't required to set aside as much in reserves and can release some of the money it had earmarked for reserves, improving underwriting performance, Stacey said.

PICC, which held 4.5 billion yuan of equities as of June 30, or 8.1 percent of its investments, also added more investment income because of the stock market rally, Zhou said. PICC hasn't said when it will announce earnings.

The stocks of the three insurers will continue to climb this year, said Mona Chung, who helps manage $800 million of assets at Daiwa Asset Management Ltd. in Hong Kong.

``Urbanization will drive more demand for insurance and other consumption stocks,'' Chung said. ``The growth potential is big.''

To contact the reporter for this story: Patricia Cheng in Hong Kong at pcheng9@bloomberg.net

Last Updated: March 29, 2006 05:00 EST