Strong profit growth forecast for Chinese life insurers

Kwong Man-ki in Beijing

Profit growth at China Life is estimated to be as high as 120 per cent year on year. Photo: Reuters

China’s life insurers are poised to report robust growth in profit last year on the back of strong investment income, but the value of new business for most firms is expected to have remained stagnant amid robust competition.

The reporting season for Chinese insurers will begin on Thursday, when Ping An Insurance is set to release its results.

The recovery in capital markets last year bolstered growth in life insurers’ investment income, Phillip Securities analyst Chen Xingyu said, forecasting decent profit growth.

"The strong growth rate was also because of a low-base effect, as mainland insurers’ profits in 2012 were hit hard by weakness in the capital markets that hurt their investment income," Chen said.

Growth in premium incomes was stable, as economic momentum improved and sales channels became more diversified, he said.

Leading players such as China Life Insurance and China Pacific Insurance were expected to post profit growth of 80-100 per cent from the previous year, Chen said.

However, non-life insurers’ profit growth was weaker, because of rising claim costs and the increase in sales of unprofitable car insurance, he said.

Earnings momentum in the insurance sector improved last year compared with a year ago, said Sun Ting, an analyst with Shenyin Wanguo Securities.

"Life insurers were able to maintain stable growth in premium income in 2013," she said.

China Life, the mainland’s largest life insurer, said premium income grew 1.23 per cent last year to 326.7 billion yuan (HK$413.7 billion), and Ping An said its premium income increased 13.6 per cent last year.

Bancassurance was the main channel for the sales of new policies, but the profit margins of bancassurance were low

Sun Ting, Shenyin Wanguo Securities

With more contribution from investment income, profit growth of life insurers would be decent, Sun said. Shenyin Wanguo forecast China Life’s profit to surge 120 per cent to 24.3 billion yuan and Ping An’s earnings to jump 40 per cent to 28.1 billion yuan.

However, the growth in value of new business, a measure of profitability of new policies, was expected to be stagnant, Sun said.

"Bancassurance was the main channel for the sales of new policies, but the profit margins of bancassurance were low," Sun said.

The high-interest-rate environment and the difficult in adding agencies as competition mounted also limited the sales of new policies.

Shenyin Wanguo expects the value of new business at China Life to have remained unchanged from the previous year and new business growth to be 14 per cent at Ping An and 6 per cent at China Pacific.

Brokerage firm China International Capital Corp (CICC) also forecast slow growth in new business value, expecting Ping An to outperform its peers with 11 per cent growth and China Life to post a 2 per cent increase.

Investment yields were expected to improve, CICC said, estimating China Life’s total investment return reached 4.6 per cent last year, compared with 2.9 per cent in 2012, and Ping An’s return increased to 4 per cent from 3.4 per cent.

China Life would outperform its peers in earnings growth, with a 119 per cent surge, CICC said, forecasting a 58 per cent jump at Ping An.

Tang Shengbo, an analyst with CICC, expects the value of new business to grow in high single-digit percentages this year, as agencies stabilise and upgraded products contribute to improved margins.

Source South China Morning Post