China Life’s Profit Jumps After Investment Returns Improve (1)

China Life Insurance Co., the nation’s largest insurer, said profit jumped 68 percent in the first half of this year as investment income rose and impairment losses dropped.

Net income increased to 16.2 billion yuan ($2.65 billion), or 0.57 yuan a share, from 9.64 billion yuan, or 0.34 yuan a share, a year earlier, the Beijing-based insurer said in a statement to the Shanghai stock exchange today. The company said July 30 that first-half profit may increase by more than 50 percent.

China Life wrote off 31.1 billion yuan last year to absorb declines in the value of its equity holdings, helping it to book gains from a bull run in the benchmark Shanghai Composite Index early this year before stocks tumbled amid an economic slowdown. Net premiums earned climbed 8.7 percent, reversing a decline in the same period last year, as the company boosted sales of lower-margin products to improve growth.

“As a major institutional investor, China Life’s investment returns benefited hugely from improvements in the market, pushing up its profit growth,” Chen Xingyu, a Shanghai-based analyst at Phillip Securities Group, said before the statement.

Investment income rose 25 percent to 49.4 billion yuan, the company said. Impairment losses from investments, which jumped 140 percent last year, dropped 76 percent in the first half to 3.7 billion yuan, according to the statement.

Bull Market

After falling about 20 percent in the past two years, the Shanghai Composite entered a bull market on Jan. 29, surging 20 percent from a December low. The gauge tumbled 13 percent in the first half as the nation’s economic expansion slowed, and has rallied 5.3 percent since June 30.

Chinese insurers are required to recognize decreased values in their “available-for-sale” securities holdings as impairment losses when investments fall more than 50 percent or have been at a loss for a year. Smaller declines are only booked as net-asset changes.

People’s Insurance Company (Group) of China Ltd., parent of the nation’s biggest non-life insurer, reported a 53 percent jump in profit on Aug. 26 as investment and premiums income expanded. China Pacific Insurance (Group) Co., the third-largest insurer, said first-half profit more than doubled after impairment losses from investments dropped 80 percent.

China Life’s new business value, which measures profitability of new policies sold, climbed 0.8 percent to 12.6 billion yuan in the first half, according to the statement.

‘More vulnerable’

China Life started to sell a new single-premium product over bank counters in June, which boosted revenue though generated “relatively low margins,” to defend its market share, CCB International Securities Ltd. analyst Kenneth Yue wrote in an Aug. 9 report. He downgraded the stock to neutral from outperform.

The company is also “in a more vulnerable position” after regulators eased pricing restrictions on traditional products, which account for a bigger share at China Life than at other major Chinese life insurers, Yue wrote.

The China Insurance Regulatory Commission this month scrapped a 2.5 percent cap on guaranteed returns for traditional life policies, in a move to help insurers win back clients that have been attracted by higher-yielding wealth management products offered by banks.

Bigger insurers may suffer from price competition and early redemptions of existing policies as a result of the easing, and some smaller companies have already launched contracts promising 3.5 percent returns, Guosen Securities Co. analysts Tong Chengdun and Tian Liang wrote in an Aug. 18 report.

China Life fell 1.9 percent in Hong Kong today before the announcement, extending this year’s decline to 24 percent.

— With assistance by Dingmin Zhang

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