(Aug. 25, 2009 - Chinavestor) China Life Insurance (NYSE:LFC), the largest Chinese life insurer, reported net profit growth of 14.2% year-over-year (YoY) on stronger gains on financial assets and higher policy fees. Total revenues hit a record RMB120.423 billion ($17.63 billion) for the first six months of 2009 representing an increase of 21.3% YoY, while net profit increased to RMB18.288 billion ($2.67 billion). The company decided not to distribute dividends this time.
Most of the gains in net profit came from two different sources:
- Increase of net premiums earned and policy fees amounted to RMB 87.863 billion vs. RMB79.285 billion same period last year.
- Net realised gains on financial assets amounted to RMB11.877 billion vs. RMB742 million last year.
Investors should note that both sources remain vulnerable for the short term. As reported earlier, net premium income growth has been lowing down in the second part of 2009. See article "China Life (LFC) Premium Income Drops". Gains on financial assets are uncertain as gloom is looming over the Chinese stocks market for the rest of 2009.
China Life insurance (NYSE:LFC) reaped benefits from the strong performance of the Shanghai Composite Index in 2009. The proportion of equity securities in investment assets increased from 8.01% at the end of 2008 to 13.43% by June 30, 2009. Most of the increase is attributed to two important positions:
- Bank of America (NYSE:BAC) unloaded an 8.5% equity stake off China Construction Bank H-shares (HKG:0939) retaining a 11.5% stake. Most of the shares went to China Life's portfolio.
- China Life Insurance (NYSE:LFC) successfully participated in the share placement of Bank of China's H-shares (HKG:3988)
While this proved to be a good strategy in the first half of 2009, uncertainty looms over the direction of the Chinese stock market for the rest of the year, putting China Life (LFC) into a vulnerable position.
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