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 2011.
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 CNY2.69bn.
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 September.
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 third.