China Life Falls as Impairments Dent Profit: Hong Kong Mover

China Life Insurance Co., the nation’s biggest insurer, fell to a nine-month low in Hong Kong trading after reporting profit slumped for a second year as investment losses surged.

China Life fell 2.9 percent to HK$20.10 at the close of trading in Hong Kong, the lowest since June 29. Net income declined 40 percent to 11.06 billion yuan ($1.8 billion) from 18.3 billion yuan a year earlier, the company said late yesterday. That compared with the 11.07 billion yuan mean estimate of 10 analysts surveyed by Bloomberg.

China’s benchmark Shanghai Composite Index 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. 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.

“Operating trends were worse than expected, with focus on volume coming at the detriment of margins,” Credit Suisse analysts led by Arjan van Veen wrote in a report dated yesterday. “We see this as a key issue for the stock going forward and see a ‘maintain market share’ strategy as likely to be at the detriment of shareholder value.”

New Business

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.

Net premiums earned climbed 1.2 percent to 322 billion yuan last year, China Life said. For the whole year, the value of new business expanded 3.1 percent, according to the statement.

A 3.8 percent decline in new business value, which gauges profitability of new policies sold, in the second half of last year despite strong premiums growth “highlights that volume is winning the battle against value -- at least for now,” the Credit Suisse analysts wrote in the report.

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. before the earnings were announced yesterday. “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.”

Stock Valuations

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 tumbled 2.8 percent today, turning this year’s rally into a 1.5 percent loss.

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.

China Pacific Insurance (Group) Co., 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.

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