November 1, 2010 (Chinavestor) Is the glass half full or half empty for China's largest insurers after revealing dismal 2010 third quarter results? China Life Insurance (NYSE:LFC), the largest Chinese life insurer, reported third quarter earnings at the end of last week.following weak numbers from its rival, Ping An Insurance (HKG:2318) earlier that month. The numbers of China Life (NYSE:LFC) were bad for the first sight sending her shares tumbling, but taking a second look at the numbers might change investors' minds.
Back to the numbers. China Life Insurance (NYS:ELFC) reported a 18.6% increase in top line growth for the third quarter YoY but a huge drop from last quarter. Total premiums earned (e.g. insurance policies sold) for 2010Q3 were RMB145,088 million ($21.27 billion) compared to RMB117,9741 million ($18.78 billion) a year ago. But investment income of RMB 24,346 million ($3.87 billion) from second quarter turned into an investment loss of RMB57,104 million ($9.09 billion) for the third, cutting deep into its bottom line. The result is that the company is back to square one on revenue and earnings growth after 12 months.
Current stock price is just about the same as 12 months ago, suggesting all those 2009 Q3 future growth premiums should be deducted now. But here is the reason why the stock is actually up today. For one, the outlook for the Shanghai Composite Index (SHA:000001) improved dramatically on sound Chinese economic news. With a sound manufacturing data on its back, China's GDP for 2010 is upped to 10%. That should lift heavy weights of the index, whose stock price determines a bulk of China Life's investment income.
Another positive development is the increase in interest rates in China. The Central Bank of China lifted interest rates last month for the first time in four years as inflation accelerated, raising the investment income of bonds China Life Insurance (NYSE:LFC) and Ping An Insurance (HKG:2318) has accumulated. Considering that both insurers, Ping An Insurance (HKG:2318) alike, reported dismal third quarter results, it only can get better. China Life's numbers are not company specific but industry specific, something that is just about to change for the reasons mentioned above.
And finally, some more company specific data. According to the latest file, accumulated income premiums for China Life Insurance (NYSE:LFC) have been on a constant rise, suggesting the company's ability to sell insurance policies is as strong as ever.