Bloomberg News

China Life Shares Rally as Investors Bet Worst is Behind

March 27, 2012

China Life Insurance Co. (2628) climbed the most in more than a month in Hong Kong trading as investors expect a rebound in earnings after the nation’s biggest insurer reported a 46 percent drop in profit last year.

The stock rose 2.7 percent to HK$20.75 at the close in Hong Kong, the biggest gain since Feb. 17. Net income dropped to 18.3 billion yuan ($2.9 billion), the Beijing-based company said yesterday. It will post a 31 billion yuan profit in 2012, based on the average estimate of 14 analysts surveyed by Bloomberg.

China Life suffered from last year’s 22 percent rout in the benchmark Shanghai Composite Index (SHCOMP), incurring 11.2 billion yuan in realized losses and impairment on financial assets, while net premiums rose 0.1 percent as it curbed short-term, single- premium policies to focus on more profitable contracts. An additional bond sale, announced yesterday after a 30 billion yuan issue of subordinated debt in November, removes concerns about any equity offering this year, according to Western Securities Co.

“The potential for improvement is bigger for China Life as its worst should be behind now,” said Qiu Peng, a Shanghai- based investment manager at Western Securities. “People are expecting both investment and premium growth to be getting better and better quarter on quarter this year while they kept worsening last year. And valuation is low historically.”

Stock Market Rebound

The Shanghai Composite has gained 8.2 percent this year as slowing economic growth spurred speculation that the government may take measures to bolster the economy and loosen curbs on the property market. China’s life-insurance premiums may expand 11 percent this year, compared to a global average of 3.1 percent, after new accounting rules and tighter regulation on so-called bancassurance led to a drop last year, according to Swiss Re Ltd.

Uncertainty in the global economy, Europe’s sovereign debt crisis and slowing growth in China will damp domestic stocks this year, Liu Jiade, China Life’s vice president, told reporters today, adding that the company will reduce “risk exposure” in stocks this year.

Still, value in Chinese stocks is “emerging” as valuation levels are at new lows, he said. The Shanghai Composite is trading at 12 times earnings, down from 17 times a year earlier.

China Life plans to issue as much as 38 billion yuan of subordinated-term debt domestically and as much as 8 billion yuan overseas, it said yesterday, after the solvency margin, which gauges an insurer’s ability to settle claims, fell 42 percentage points last year to 170.12 percent.

Bond Sale Uncertainty

The 38 billion yuan bond sale will lift the solvency ratio by 50 percentage points, Liu said, adding that a 200 percent ratio is appropriate. There’s still “uncertainty” on the overseas bond sale as it needs regulatory support, he said.

“The rest of the results did not provide too much comfort with significant deteriorations in the solvency ratio and worse- than-expected NBV growth,” Barclays Plc analysts led by Mark Kellock wrote in a report today, referring to a 2 percent increase in new business value, a measure of profitability from new policies sold.

The median estimate of 13 analysts surveyed by Bloomberg was for profit of 21.7 billion in 2011. Only four analysts revised their estimates after the insurer said March 6 its earnings would fall by 40 percent to 50 percent, according to data compiled by Bloomberg.

The Hong Kong benchmark Hang Seng Index (HSI) rose 1.8 percent. Ping An Insurance (Group) Co. (2318) climbed 1.3 percent. China Life’s Shanghai-traded shares rose 0.9 percent to 17.10 yuan.

--Zhang Dingmin. Editors: Linus Chua, Andreea Papuc

To contact the Bloomberg News staff for this story: Zhang Dingmin in Beijing at Dzhang14@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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