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Analysts urged China Life Insurance to cut reliance on the equity market and explore fresh profit engines after it posted a sharp fall in first-quarter net profits yesterday.
But they don't expect remarkable improvement this year, as it may take time for China's top life insurer, known for its prudence in diversifying its business, to make real headway.
China Life posted a 61 percent fall in first-quarter profit, according to mainland accounting standards, dented by a poor investment performance.
The company's net profits fell to 3.47 billion yuan from 8.89 billion yuan from a year ago.
Due to a plunge in the Shanghai stock market earlier this year, China Life booked a 5.5 billion yuan loss on the fair value of its investment portfolio, mainly in stocks, the company said in a statement to the Shanghai stock exchange yesterday.
That compared with a fair value gain of 3.9 billion yuan in the same period last year.
Shanghai's stock market, on which China Life depends for a sizeable portion of its investment income, has dropped by around 32 percent since the start of the year on expectations of slowing income growth and rising interest rates to combat inflation.
"Now, we see a serious profitability problem in China's insurance sector. Insurers walked with one leg. How can they do well after this leg is crippled?" said Wang Lei, an analyst with Guotai Junan Securities, adding that China Life's major rival Ping An Insurance may face similar fate.
China Life shares will face mounting pressure today, and "the sluggish result will trigger a string of downgrades or target price cuts from investment banks and brokerages", he added.
China Life, which faces challenge from home rivals such as Ping An and China Pacific Insurance as well as overseas players such as Aviva and Manulife, has decided to put less money in the stock market and try to invest more in overseas markets. The move is apparently aimed at shunning a declining stock market.
Many analysts, however, said it will be defeated by Ping An in securing more profit engines, either in traditional insurance market or overseas expansions.
"Its premium growth slowed down ... Amid a bearish stock market, it terribly needs to enhance its ability to explore fresh profit engines," CITIC Securities said in a research report dated April 16, which assigned a "hold" rating to China Life's H-shares.
On overseas expansion, the insurer's prudent strategy will "need time to have an effect", KGI said in an analysis.
China Life made its maiden overseas investment by buying Visa's US initial public offering in March, while Ping An has established its fame as an avid international deal maker, whose latest action was acquiring 50 percent stake of Fortis Investment for $3.4 billion.
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