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China Life's Revenue Growth Strong, Rising Expenses a Drag

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China Life Insurance Company Ltd’s  robust market position and organic growth initiatives continue to impress. The company’s operational efficiency, which is reflected by its product upgrades and premium growth over the last few years, has solidified shareholders’ confidence eon the stock. In fact, China Life shares  outperformed the Zacks categorized Life Insurance industryin the last one year. The stock gained have gained 33% while the broader industry registered an increase of 29%.

China Life has been witnessing consistent growth in revenues backed by solid increase in premiums over the past few years. Given that premiums are the main source of business for an insurance company, increase in premiums directly translates to top-line growth in the long run. Continuing the trend since its inception, gross premiums written increased 18.3% year over year to RMB 430.5 billion (US$61.9 billion) in 2016. Net premiums earned grew 17.6% year over year to RMB 426.2 billion (US$ 61.37 billion).

The company regularly upgrades products and services to remain competitive in the international life insurance market. Following the launch of the upgraded Rui Xin insurance in 2013 and micro insurance program in 2015, the company promoted C-ROSS in 2016. C-ROSS is a risk management guidance that is expected to help the company maintain a robust risk control system, mitigate key risks, and ensure smooth business operations.

However, the company has been adversely impacted by the slowdown in the Chinese economy over the last few years. Despite the brake in economic slowdown in 2017, there is no immediate development opportunity or scope for growth in the near future.

In addition, the stock seems to be overvalued. Its Price to Earnings Growth (PEG) ratio of 3.62 is above the industry level of 1.16. The Price to Book (P/B) ratio of 1.92 is also higher than the industry average of 1.00. Moreover, its Price to Cash Flow (PCF) ratio of 24.55 is higher than the industry average of 4.06.

Rising expenses also raise concerns. As a continuation of the previous trend,Underwriting and Policy Acquisition Costs ratio deteriorated 260 basis points (bps) year over year to 9.6% in 2016. Administrative Expenses ratio also deteriorated 50 bps year over year to 5.9% in the same year.

Zacks Rank and Stocks to Consider

China Life has a Zacks Rank #2 (Buy).

Investors interested in the finance sector can also consider stocks like Arbor Realty Trust (ABR - Free Report) , American Financial Group, Inc. (AFG - Free Report) and CBRE Group, Inc. . All of the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Arbor Realty Trust delivered positive surprises in the last four quarters with an average beat of 34.06.

American Financial Group also delivered positive surprises in the last four quarters with an average beat of 6.45.

CBRE Group delivered positive surprises in the last four quarters with an average beat of 8.23.

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