China Life’s 2013 Profit Jumps on Higher Investment Returns

Mar 26, 2014 4:30 am ET

(Updates to close shares in seventh paragraph, to include chairman comment in 12th.)

March 26 (Bloomberg) -- China Life Insurance Co., the nation’s largest insurer, said profit more than doubled last year after investment returns improved, reversing two years of earnings declines and in line with a January forecast.

Net income rose to 24.8 billion yuan ($4 billion), or 0.88 yuan a share, from 11.06 billion yuan, or 0.39 yuan a share, a year earlier, the company said in a statement to the Hong Kong stock exchange yesterday. The profit is lower than the 28 billion yuan median estimate from a survey of 13 analysts by Bloomberg. China Life said Jan. 27 that 2013 profit may jump about 120 percent.

Stock-market rallies last year helped China Life boost investment returns and contain impairment losses that more than doubled to 31.1 billion yuan in 2012 and led to a 40 percent decline in net income that year. The company boosted debt holdings to 47.3 percent of its portfolio while cutting equities to 7.5 percent, indicating a more conservative investment strategy that helped ensure stable returns, Ping An Securities Co. analyst Jiao Wenchao wrote in a report today.

“China Life has maintained its conservative asset allocation strategy, a core investment thesis on the insurance stocks amid China’s deteriorating credit cycle,” Sanford C. Bernstein Co. analysts led by Hong Kong-based Linda Sun-Mattison wrote in a report.

Investment income rose 13 percent to 82.8 billion yuan, the company said. Impairment losses from investments, which jumped 140 percent in 2012, fell 88 percent last year, according to the statement.

Shares Rise

Net premiums earned grew 0.8 percent in 2013, the company said. China Life’s new business value, a measure of profitability of new life policies sold, was 21.3 billion yuan, up 2.2 percent from a year earlier, according to the statement.

China Life’s shares rose 0.2 percent to HK$21.20 at the close of Hong Kong trading, cutting this year’s decline to 13 percent.

The benchmark Shanghai Composite Index fell about 20 percent in the two years ending December 2012, forcing insurers to recognize investment losses under Chinese accounting rules. The gauge fell 6.8 percent last year as the nation’s economic expansion slowed.

“2013 was an extraordinary year,” China Life Chairman Yang Mingsheng said in the statement. “The world economy recovery experienced difficulties, and the Chinese economy faced increased difficulties and challenges. The insurance industry, in particular the life insurance industry, has entered a stage of relatively mild growth.”

‘Substantial Increase’

China’s life insurance companies may report an average 92 percent jump in net income for 2013 due to low year-earlier bases and property insurers may record a 14 percent expansion, according to Bocom International Holdings Co.’s Beijing-based analyst Li Wenbing. Ping An Insurance (Group) Co., the nation’s second-largest insurer, reported March 13 a 40 percent jump in profit last year as premiums and banking revenue grew and investment returns improved.

China Life may see a “substantial increase” in its investment yields this year as it boosts alternative investments such as real estate and private equity, Changjiang Securities Co.’s Wuhan-based analyst, Liu Jun, wrote in a Jan. 27 report, citing new investment units set up last year.

The company will boost private-equity investments, work with local governments on their major, long-term projects, and plans to have retirement real estate in key cities within two to three years to tap demand from the nation’s growing number of senior citizens, Chairman Yang told reporters in Hong Kong today. China Life has bought a plot of land in the eastern city of Suzhou to develop a “high-end retirement base,” he said without elaborating.

President Wan Feng resigned and has been elected as vice chairman, according to a separate statement to the Hong Kong stock exchange yesterday. The company, which named Lin Dairen as the new president, also said it will spend 2.8 billion yuan to help boost the capital base of the group’s non-life insurance unit along with parent China Life Insurance Group Co.

The management transition has been “smooth” and company strategies will be “consistent” with existing policies, Yang said.