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China Life Profit Slumps on Investment Losses of Stock Holdings

China Life Insurance Co. (2628), the nation’s biggest insurer, said profit slumped for a second consecutive year amid mounting investment losses.

Net income fell 40 percent to 11.06 billion yuan ($1.8 billion), or 0.39 yuan a share, from 18.3 billion yuan, or 0.65 yuan a share a year earlier, the company said in a statement to Shanghai stock exchange. That compares with the 11.07 billion yuan mean estimate of 10 analysts surveyed by Bloomberg.

China’s benchmark Shanghai Composite Index (SHCOMP) dropped about 20 percent in the past two years as the nation’s economic expansion cooled, eroding insurers’ investment returns and forcing them to write down on some equity holdings. Smaller competitor Ping An Insurance (Group) Co. (2318) reported a 3 percent profit increase this month as bigger banking revenue helped offset an almost tenfold jump in net realized and unrealized investment losses last year.

China Life’s investment performance “hasn’t been particularly desirable and lags far behind investor expectations,” said Xie Jiyong, a Shanghai-based analyst at Capital Securities Corp. (6005) before the earnings were announced. “They should have digested almost all the unrealized losses by the end of last year though, and are very likely to record an increase in profit this year.”

Investment Losses

Impairment losses from equity investments jumped 140 percent to 31.1 billion yuan last year, the company said. Investment income, mainly interest earned from bonds holdings and bank deposits, rose 23 percent to 80 billion yuan, according to the statement. The company said Feb. 28 that profit probably dropped about 40 percent in 2012 on lower investment yields and increased impairment losses because of weakness in capital markets.

The Shanghai Composite fell 5.2 percent in the first three quarters of last year, before rallying 8.8 percent in the fourth quarter as the nation’s economic growth gained momentum. The gauge has risen 1.4 percent this year.

Ping An’s net investment losses jumped to 9.5 billion yuan last year, while impairment losses more than doubled as the company reflected the decreased values in its stock holdings under accounting rules that require such recognitions when investments fall more than 50 percent or have been at a loss for a year, the insurer’s Chief Investment Officer Timothy Chan told reporters in Shanghai March 15.

Net premiums earned climbed 1.2 percent to 322 billion yuan, China Life said. The value of new business, which gauges profitability of new policies sold, expanded 3.1 percent, according to the statement.

China Life fell 0.2 percent to HK20.70 in Hong Kong trading, extending this year’s decline to 18.2 percent.

China Pacific Insurance (Group) Co. (2601), the nation’s third- largest insurer, on March 24 reported a 39 percent drop in profit for last year as investment losses more than doubled and impairments jumped 57 percent.

To contact Bloomberg News staff for this story: Zhang Dingmin in Beijing at dzhang14@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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