China’s biggest life insurers posted disappointing quarterly results on Monday, hurt mainly by investment income which took a hit from plunging stock markets across the region.
China Life Insurance, the country’s largest life insurer, said third-quarter net profit fell more than 70 percent, hit by a drop in China’s markets.
Second-ranked Ping An Insurance (Group) Co posted a sharp third-quarter loss after it booked a charge against its investment in troubled Belgian-Dutch financial group Fortis.
China’s insurers, after reaping huge gains from equity investments in 2007, are facing tough challenges as stock markets tumble and competition intensifies. China’s main stock index has slumped nearly 70 percent this year, hammered by the global financial crisis and gloomy economic prospects.
“The next few years will be more difficult for insurers, as the stock markets are likely to slide further and China has entered a cycle of interest rate cuts,” said Pan Hongwen, analyst at Haitong Securities.
Lower interest rates impacts the return insurers would earn from their fixed income investment portfolio, as most of their investments are in bonds.
Unlike other insurers across the globe, much of the income earned by China’s insurance companies comes through investments in public securities.
China Life earned 2.34 billion yuan ($342 million) during the July-September period, compared with 7.82 billion yuan a year earlier.
Ping An reported a net loss of 7.88 billion yuan ($1.15 billion) for the quarter ended September, against a profit of 5.28 billion yuan a year ago.
“Under such complicated and dire operating environment, the company saw a noticeable decrease in its investment income, and the impairment provision for its investment in Fortis shares exerted a significant impact on the net profit,” Ping An said in a statement.
Ping An posted an investment loss of 12.4 billion yuan versus a gain of 17.1 billion yuan a year earlier. The insurer said it increased the proportion of investment in fixed income assets.
The company said this month it would book a loss of about 15.7 billion yuan on its investment in Fortis, the result of marking down the market value of its 5 percent stake in the financial group that was later taken over by the government.
Credit Suisse analyst Christopher Esson said he thinks that Fortis’ further decline in stock price means Ping An will have to write down another 7 billion yuan.
Business at China’s insurers is growing rapidly, however, reflecting rising demand among China’s increasingly affluent population for a variety of insurance products.
Shares of Ping An have lost 56 percent in the past three months, slightly outperforming a 60-percent loss in the index for mainland Chinese companies listed in Hong Kong amid the global financial crisis.
China Life’s stock slumped 13.92 percent to HK$16.70 in Hong Kong on Monday, as the benchmark Hang Seng Index tumbled 12.7 percent in its biggest one-day fall since 1997.
“Insurers’ profits are as volatile as the stock indexes,” said Wang Xiaogang, analyst at Orient Securities. “Since China has entered an interest rate-cutting cycle, insurers’ investment income will be dented further in coming years.”
($1=6.845 Yuan) (Additional reporting by Alison Leung and Samuel Shen; Editing by Jason Neely)
Topics Carriers Profit Loss China
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