A man stands in front of a Ping An Insurance (Group) Co logo in Shanghai. Thanks to the bullish stock market last year, insurers are expected to post strong earnings in their annual reports for 2009. [Agencies]
Industry growth to hit 15%, fueled by consumer demand
China's insurance sector may offer good opportunities for investors this year after shares of listed insurers tumbled recently, and industry profitability is expected to strengthen on higher bond yields and faster premium income growth.
After fears of interest rate hikes dampened investor sentiment, the insurance sector is in a strong position, despite January's sluggish stock performance.
"Increasing interest rates will help insurers gain higher yields from bonds and bank deposits," said Wang Xiaogang, a senior analyst with Shanghai-based Orient Securities. Eight percent of insurers' investment portfolios are usually made up of these two types of assets.
Expanding investment channels, on the other hand, may further boost insurers' investment returns. Wu Dingfu, chairman of the China Insurance Regulatory Commission (CIRC), said in late January that regulatory details on insurers' investments in property and unlisted companies would be released soon.
Meanwhile, the insurance sector is expected be on the fast growth track again after business restructuring that started in September 2008. CIRC statistics show insurers' income from premiums rose 13.8 percent to 1.1 trillion yuan last year. While for 2010, China Galaxy Securities expects industry growth to hit 15 percent, fueled by growing consumer demand and favorable government policies designed to stimulate the development of enterprise annuities.
According to a survey conducted by Skandia-BASM Life Insurance and Qianjing Magazine, wealthy individuals place great importance on insurance coverage. The survey, covering 1,012 interviewees with more than 500,000 yuan in new investments each year, shows that 65 percent have previously purchased insurance policies, while 35 percent plan to purchase additional policies within the next year.
A favorable taxation policy on annuities - which is slated to undergo a trial run in Shanghai first - will also boost premium growth. A similar US experience has demonstrated that when favorable policies are adopted, the annuity scale will exceed that of life insurance in 16 years. Analysts said that Shanghai-headquartered China Pacific Insurance Group Co (CPIC) will be the largest beneficiary of this policy and is expected to see a considerable increase in its premium income for 2010.
Thanks to the bullish stock market last year, insurers are expected to post strong earnings in their annual reports for 2009.
On Saturday, the country's top three life insurers all released their profit forecasts for 2009. Ping An Insurance (Group) said it expects its 2009 net profit to soar more than 1,500 percent, as it benefited from an accounting rule change and strong growth in its insurance, banking and investment businesses. Ping An's 2008 net profit was 662 million yuan, according to a statement sent to the Hong Kong stock exchange. The company did not provide an estimate for 2009.
China Pacific Insurance (Group) Co Ltd (CPIC), the country's third largest insurer, said its net profit, some 1.34 billion yuan in 2008, would rise an estimated 400 percent in 2009. And the largest insurer, China Life Insurance (Group) Company, will also see its 2009 net profits rise by more than 50 percent, largely due to last year's booming stock market.
The benchmark Shanghai index rallied 80 percent in 2009, helping to boost the value of insurers' equity holdings.
Despite the insurers' business appeal in 2009, their share prices have been weak, thus making them safer investments over other sectors. Since Nov 24, the Shanghai Composite Index dropped more than 7 percent, but Ping An, CPIC and China Life fell around 20 percent, 13 percent and 12 percent respectively.
"The flat performance of insurance shares is mainly due to market concerns over the impact of accounting rule changes on calculating insurers' profits," said Oriental Securities' Wang. "But this factor has been fully priced in, making it a good time to purchase insurance stocks."
Wang expects the investment return on China Life, Ping An and CPIC last year to stand at 7.5 percent, 8.0 percent and 6.8 percent respectively.
