China Life’s Profits Grow

China Life Insurance Company (LFC - Analyst Report), the leading life insurer in China, has posted a 15% rise in profits in the first half of 2009 compared to the prior-year period. The company earned 18.2 billion yuan ($2.7 billion) in the first half of 2009 driven by gains realized on financial investments. The gains stemmed from the capital market rally in China.

Gross yield on its investments in the period was up 3.27% from 2.31%. Gross written premiums and policy fees were up 11% to 87.86 billion yuan. The increase was mainly attributable to an increase in its insurance business. Renewal premiums grew 23% year-over-year, while the proportion of renewal premiums to gross written premiums increased to 66.84% in the first half of 2009 from 60.44% in the year-ago period.

The company said that it may invest in AIA, which is planning a Hong Kong initial public offering (IPO). AIA is the Asia unit of American International Group (AIG - Analyst Report). Deutsche Bank (DB - Snapshot Report) and Morgan Stanley (MS - Analyst Report) have been appointed by AIG as its joint global coordinators for a more than $4 billion IPO for AIA. The company is also eyeing an equity tie-up with Agricultural Bank of China. However, the company does not intend to sell its 5.1% stake in Minsheng Banking Corporation.

The company is also a leading provider of annuity products and life insurance for both individuals and groups and a leading provider of accident and health insurance. China Life’s market share in the first half of 2009 was approximately 39.2%.

Recently, the insurance regulator of China allowed insurance firms to invest in infrastructure projects. In view of recent moves by the insurance regulator, which are likely to affect banc-assurance growth, China Life seems better positioned than its peers, due to its large agent distribution network.

We have a Buy recommendation on the shares of China Life.

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