China Life Insurance continues to demonstrate stability despite worries regarding the potential decline of China’s sovereign credit rating, according to Fitch Ratings. The insurer, which has minimal foreign currency obligations, remains unaffected by the country’s credit ceiling.
Majority-owned by the Ministry of Finance through China Life Insurance (Group) Company, China Life is a pivotal player in the Chinese insurance market.
The company’s financial performance has been solid, achieving an average return on equity (ROE) of 14% for 2022-2023, with an annualized ROE of 16% in the first half of 2024. This performance was primarily driven by unrealized gains. However, the insurer reported decreased investment income in 2023, impacted by disposal losses and higher unrealized losses.
In the first half of 2024, China Life saw its new business value rise by 18.6% year-on-year, even as premium growth decelerated to 4.1%. This growth was bolstered by its individual agent channel and bancassurance, which benefited from reduced commission costs due to new regulatory measures.
China Life’s capital position remains robust, with a core solvency ratio of 152% as of mid-2024. However, its comprehensive solvency ratio declined to 205% as a result of lower interest rates and increased equity investments.
Under Fitch’s Prism Global model, the insurer’s capital score is deemed ‘Adequate.’ Following the redemption of capital supplementary bonds in the first half of the year, China Life reported no financial leverage. The issuance of CNY 35 billion in new bonds in September 2024 is not expected to significantly alter its low leverage ratio.
Despite these strengths, China Life’s exposure to risky assets rose to 152% of its total equity by mid-2024, an increase from 143% at the end of 2023. This situation raises concerns about potential market volatility affecting earnings and capital, particularly due to single-name concentration risk associated with its 21.5% equity stake in China Guangfa Bank.
Fitch also emphasized China Life’s strong market position, which is underpinned by its extensive policyholder base, brand recognition, and a vast distribution network, including the largest agency sales force in the industry.
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