life insurer, China Life Insurance, has warned of challenges ahead
as the company faced what he termed “keen competition in the
insurance industry and the uncertainty of the capital markets”. His
comments accompanied the release of China Life’s 2007 annual
results, which revealed a sharp fall in market share and
vulnerability to a weak equity market.
Measured purely in growth terms, China Life’s results in 2007
were spectacular. Its net profit was up 94.8 percent compared with
2006 to RMB38.88 billion ($5.54 billion), while earnings per share
increased by 84 percent to RMB 1.38.
Go deeper with GlobalData
However, profit growth was driven to a significant extent by robust
returns on the equity portion of China Life’s investment assets.
This reflected increased exposure to equity following relaxation of
limits on equity investment and substantial gains made by China’s
equity market that measured by the Shanghai Stock Exchange
Composite Index (SSECI) rose by 100.4 percent in 2007.
As at 31 December 2007, China Life’s balance sheet reflected total
equity investments of RMB 195.15 billion. This was up 104 percent
compared with 2006, and increased equity as a proportion of total
assets from 12.5 percent to 20.96 percent. Total assets of RMB
933.7 billion were reported.
Similarly, equity played a far more prominent role in China Life’s
profits in 2007. Of total net investment income that increased by
76.5 percent to RMB 44.02 billion, equity contributed RMB19.4
billion or 44.1 percent compared with 18.7 percent (RMB 4.66
billion) in 2006. In addition realised gains on equity investments
in 2007 totalled RMB19.87 billion, up from RMB 1.6 billion in 2006,
while fair value gains on equity investments amounted to RMB18.48
billion, down from RMB19.75 billion in 2006.
In total, net realised and unrealised gains on equity investments
in 2007 were RMB38.35 billion, or 20 percent of total revenue of
RMB191.37 billion. Given that the SSECI has fallen by about a third
since the start of 2008, it is hardly surprising that China Life’s
own share price has taken a beating, more than halving from an
all-time high of $106.75 per share in October to $52 per share in
the last week of March 2008.
China Life’s declining market share trend, evident for some years,
has also not gone unnoticed by investors. The decline was
especially marked in 2007, with the insurer reporting that its
market share had fallen to 39.7 percent compared with 45.3 percent
in 2006 and 46.86 percent in the first half of 2007. China Life
reported net premiums earned and policy fees of RMB111.4 billion in
2007, up 12.7 percent compared with 2006.
Though China Life’s nearest rival, Ping An, reported a lower market
share, the fall was lower: from 17 percent to 16 percent. Ping An’s
share price has also been hammered, falling from $124 per share in
October 2007 to $55 per share in late March 2008.
Strategies being implemented by China Life to regain lost market
share include enhancing distribution channels and upgrading service
levels, said Chao. For example, restructuring branch management in
2007 has created younger, more professional and more competitive
management teams, he said.
At the end of 2007 China Life had 15,500 offices and 638,000
exclusive agents. In addition, it had 90,000 bancassurance outlet
intermediaries and 18,000 customer service managers in bank
branches, post savings and co-operative saving institutions. “We
have started to reap the benefits of sharing customer resources and
cross-selling,” said Chao.
Probably the best recent news from China Life was its big
investment in payment card company Visa’s IPO in March this year.
The IPO, which raised $17.86 billion, was a big success, with
Visa’s share price trading at about $63 per share in the last week
of March – 43 percent above its listing price of $44 per share on
20 March.
According to China Life, it invested $300 million in the IPO, an
investment that is now worth about $430 million.
