China Life’s net profit
attributable to ordinary shareholders came under extreme pressure
in the third quarter of 2011, falling 45% compared with the same
quarter in 2010 from CNY6.9bn ($1.1bn) to CNY3.8bn.

This marked further
deterioration in the performance of China’s largest insurer which
reported a 21.8% decline in its attributable profit in the first
half of 2011 to CNY12.96bn.

China Life attributed the
significant deterioration in its performance in the third quarter
to the sharp decline in the Shanghai A-Share Stock Price Index
which shed almost 15% of its value in the third quarter of

This required China Life to
provide for an impairment of assets of CNY2.4bn, significantly
higher than an impairment provision of CNY637m made in the third
quarter of 2010.

In a comment on China Life’s
third quarter of 2011 results, ratings agency Moody’s Investors
Service also pointed to the negative impact of higher surrenders
and lower premium income.

Specifically, surrenders
increased by almost 60%, from CNY6.4bn in the third quarter of 2010
to CNY10bn.

Moody’s attributed the rise
in surrenders to customers switching from insurance products into
higher yielding bank products. Moody’s expects the high rate of
surrenders to continue for another 12 to 18 months.

China Life also fared poorly
in terms of premium income in the third quarter of 2011, reporting
a 6.2% decline to CNY68.7bn. This built on a below-par showing in
the first half of 2011, in which the insurer reported a 6.5%
increase in premium income to CNY187.1bn.

The increase was well below
the life industry’s 13% increase to CNY805.66bn reported by the
China Insurance Regulatory Commission (CIRC).

In part, the more attractive
yields to be had on bank products played a role in China Life’s
poor premium income performance. In addition to product switching,
Moody’s noted that stricter regulation of bancassurance sales has
added to downward pressure on premium income growth.

However, contrasting markedly
with China Life, Ping An, the country’s second-largest insurer,
produced strong results in the third quarter of 2011.

At first glance, this is not
evident in Ping An’s net attributable profit which fell 44%
compared with the third quarter of 2010, from CNY3.15bn to
CNY1.76bn. In reality Ping An produced strong profit growth in the
third quarter of 2011.

The insurer reports that the
consolidation of Shenzhen Development Bank (SDB) resulted in a
once-off, negative CNY1.95bn accounting adjustment.

If this adjustment is
excluded, Ping An’s net attributable profit increased by 18.1% in
the third quarter of 2011 and by 29.1% to CNY16.47bn in the first
three quarters of the year.

Ping An acquired a 52.4%
stake in SDB in July following completion of the merger between SDB
and Ping An Bank. To acquire this stake, Ping An injected its 91%
stake in Ping An Bank into SDB and made a cash payment of

The total deal was valued at
CNY29.1bn and has been the primary reason for a significant
increase in Ping An’s total assets. These rose from CNY1.171bn at
the end of December 2010 to CNY2.19bn at the end of

Ping An also produced strong
premium income growth in the first three quarters of 2011, lifting
total premium income by 32% compared with the same period in 2010
to CNY93.95bn.

Although the insurer’s
general insurance operations provided the biggest impetus to this
growth, its life operation also turned in a solid showing, lifting
premium income by 16.1% to CNY144.06bn.

Ping An noted that growth was
particularly strong in the more profitable individual life segment
where premium income grew by 25% to CNY126.35bn. Ping An’s figures
indicate a solid market share gain. According to the CIRC, China’s
life insurance industry recorded a 6.4% fall in premium income in
the first eight months of 2011.

While neither China Life nor
Ping An’s share prices have fared well over the past 12 months,
Ping An’s stronger profit and premium income showing has provided
some resilience.

Indicatively, since reaching its highest level in three
years in November 2010, China Life’s share price on the Hong Kong
Stock Exchange (HKSE) has shed just short of half of its value.
During the same period, Ping An’s price on the HKSE has fallen by a