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Will China Life's Goegraphic Concentration Limit its Growth?


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On Sep 28, 2016, we issued an updated research report on China Life Insurance Co. Ltd. (LFC - Analyst Report) .

The Beijing-based life insurance company is China’s largest insurance asset management company of China. With its extensive distribution and customer service network, the company dominates the market in which it operates.

The life insurer continues to enhance its product portfolio through technological innovations and upgrades. Hence, the company remains well poised to cater to changing customer demands and keep pace with development of technology.

Notably, China Life was the first Chinese insurance company to obtain a private equity fund license and enter the private equity business in Aug 2011. The company’s strong brand name has cemented its goodwill and strong enterprise value, enabling it to be a trendsetter in its operational space.

The increase in earned premiums over the last few years clearly evidences the company’s solid revenue base. Though several insurers like CNO Financial Group Inc (CNO - Analyst Report) , James River Group Holdings Ltd (JRVR - Snapshot Report) , ageas SA/NV (AGESY - Snapshot Report) have been hit hard by the persistently weak interest rates, China Life’s sustained premium growth has somewhat cushioned it from the adversity.

The company’s balance sheet strength has also mitigated its financial risk. The company’s strong liquidity has led to an improvement in its solvency. Furthermore, the insurer’s commendable debt servicing capability has found favor with investors. As of Jun 30, 2016, the company’s core solvency ratio increased to 298.32% and comprehensive solvency ratio was 329.09%.

China Life intends to invest more in business development initiatives. It plans to take a serious call on the weak implementation of strategies on its sales force, tapping opportunities in urban areas in order to stabilize growth has been another component of their plan.

However, the slowdown in the Chinese economy is a major headwind for this company as most its operations are confined to the nation itself. In addition, China Life needs to strengthen its cost-management initiatives to avoid capital erosion. Persistently weak cash inflow indicates the company’s waning operating efficiency.

China Life presently carries Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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