China Life Warns on Profits

By and | October 17, 2012

China Life , the world’s largest insurer by market value, warned of a 55 percent fall in profits in the first nine months – pointing to its first quarterly loss since 2008.

The warning from the state-controlled company surprised analysts and could bode ill for other financial firms, suffering from falling stock and bond markets that have hurt investment income. Slowing growth has also made it harder for insurers to raise premiums.

China Life said its nine-month net profit could drop by 55 percent due to a fall in investment yield and higher impairment losses because of weakness in capital markets.

If borne out when results are reported on Oct. 26, those figures would translate into a 2.1 billion yuan ($335 million) third-quarter loss when taking into account first half profits – its first quarterly loss since the global financial crisis.

“This is a shock,” said Hong Jinping, analyst at China Merchants Securities. “The company’s impairment losses during the quarter far exceed market expectations.”

Three analysts polled by Reuters had expected a quarterly profit increase of around 30 percent, instead of a loss.

Chinese insurers are allowed to invest up to 20 percent of assets in domestic stocks, which have fallen 4 percent this year after a decline of 22 percent in 2011.

Unlike its main rival Ping An , which has diversified into banking and asset management, China Life is highly vulnerable to a volatile stock market.

Ping An is expected to post a 20 percent rise in net profit during the first nine months of the year, according to a forecast by Chinese brokerage Shenyin Wanguo Securities Co.

China Life has issued profit warnings for previous quarters and in August posted its seventh consecutive decline in quarterly profit. Chairman Yang Mingsheng said in August he did not expect investment yields to improve in the second half.

China Life has a market capitalization of more than $83 billion. Majority-owned by the Chinese government, it posted a full-year profit in 2011 that was down 45.5 percent year-on-year.

The statement on Wednesday did not specify which assets had been impaired. The company last reported a quarterly loss in the fourth quarter of 2008.

The Shanghai-listed shares of China Life have risen about 1 percent from the beginning of the year. The company’s Hong Kong-listed shares have risen about 15 percent. Ping An’s Hong Kong shares are up about 18 percent so far this year. ($1 = 6.2640 Chinese yuan)

(Reporting by Clare Baldwin in HONG KONG and Samuel Shen in SHANGHAI; Editing by Matthew Tostevin)

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