China Life Insurance stays robust amidst national credit concerns

NBV increased by 18.6% year-on-year in the first half of 2024.

China Life Insurance remains resilient despite the potential for further deterioration in China's sovereign credit profile, according to Fitch Ratings. The company has minimal obligations in foreign currencies, and its ratings are not affected by the country's ceiling. 

China Life, 90% owned by the Ministry of Finance through China Life Insurance (Group) Company, plays a key role in the Chinese insurance sector.

China Life's financial performance remains robust, with an average return on equity (ROE) of 14% in 2022-2023, and a 16% annualised ROE for the first half of 2024, driven by unrealized gains. However, the insurer faced lower investment income in 2023 due to disposal losses and increased unrealised losses. 

New business value increased by 18.6% year-on-year in the first half of 2024, whilst premium growth slowed to 4.1%. Growth was supported by the individual agent channel and bancassurance, which saw reduced commission costs due to new regulations.

China Life’s capital remains strong, with a core solvency ratio of 152% as of mid-2024, though its comprehensive solvency ratio fell to 205% due to lower interest rates and increased equity investments. 

The insurer’s capital score under the Fitch Prism Global model is considered 'Adequate'. After redeeming capital supplementary bonds in the first half of the year, China Life had no financial leverage, and the issuance of CNY35b in new bonds in September 2024 is not expected to significantly impact its low leverage ratio.

However, China Life's exposure to risky assets increased to 152% of its total equity by mid-2024, up from 143% at the end of 2023. 

This raises concerns over market volatility affecting earnings and capital, with single-name concentration risk stemming from its 21.5% equity stake in China Guangfa Bank.

Fitch also highlighted China Life's strong market position, supported by its large policyholder base, brand strength, and extensive distribution channels, including the largest agency sales force in the sector.