HK-listed insurers' profits improve

The operating profit of the six Hong Kong-listed Chinese life insurers improved significantly in the first half of 2019 from a year earlier and their solvency positions remained resilient, Fitch Ratings said on Monday.

Their net profit rose strongly by 50 to 130 percent year over year from January to June, due mainly to higher investment income from invested-asset growth and the recovery of China’s A-share market, although some insurers had lower margins.

China Pacific Life Insurance (CPIC Life), Taiping Life Insurance and New China Life Insurance had weaker margins as the value of new business declined 8 to 10 percent.

Taiping Life's new business from health insurance declined from a year ago because of intensifying competition in the sector. CPIC Life's new business premiums dropped by about 3 percent while that of the other two insurers remained flat.

On the other hand, China Life Insurance, Ping An Life Insurance and PICC Life Insurance generated value of new business growth of 5 to 26 percent because of an improving business and channel mix.

The results demonstrated their continuous pursuit of long-term value-focused growth and the efforts of a deepening business transformation that started in the second half of 2018, a process that will lift their margins and generate more stable future cash inflows, the ratings agency noted.

Evident progress can be seen in their business shift to long-term (10 years or longer) regular-premium and higher-margin protection-focused products after China's regulatory curbs on short-term insurance and savings products in 2017, the report said.

Fitch believes optimization of their business structures and a more productive agency force that will drive sustainable high-value business growth are the key drivers that will give the insurers a competitive advantage within the sector.

The agency channel will become more dominant as it is a more effective way of selling these products, Fitch predicts. China Life and New China Life have robustly expanded their agency force, with an increase of 7 percent and 16 percent in scale, respectively, while the rest of the listed peers are more focused on removing unproductive agents and building up a more effective agency force.

As for assets, these insurers’ alternative investments have continued to rise but not as rapidly as in the previous two years. Fitch notes asset-liability management will be a key challenge for the insurers due to their lengthening liability duration and expects them to add stocks, long-term equity and property investments, after a structural shift in their insurance liability profiles.

Their solvency positions remained resilient, with comprehensive solvency ratios well above 200 percent by the end of June. In Fitch's view, their solvency positions will remain solid till the end of the year if they are able to maintain their value-creation strategies alongside a cautious appetite for investment risk.