* China Life Q3 net profit 7.5 bln yuan vs loss a year
* Ping An Insurance Q3 net profit 5.4 bln yuan vs 2.1 bln
yuan a year earlier
* Price competition pushes auto sector to verge of
By Lawrence White
HONG KONG, Oct 25 China's two biggest insurers
reported huge gains in profitability as life premium incomes
rose and returns on their financial market investments improved,
offering some respite to worries about a sagging auto insurance
China Life Insurance Co Ltd , the
world's biggest insurer by market value, swung to a
third-quarter profit of 7.5 billion yuan ($1.23 billion) from a
loss a year earlier. Smaller rival Ping An Insurance Group Co of
China Ltd more than doubled its profit.
An increasingly less profitable auto insurance market is
threatening to drag down insurers' results this year and the
next, analysts say. That will disrupt the progress made in their
life insurance business, the other earnings driver.
While China Life is not involved in auto insurance, business
in that segment of the industry is important for smaller rivals
Ping An, China Pacific Insurance Group Co Ltd
and People's Insurance Company (Group) of China Ltd
China's property and casualty (P&C) insurance sector, of
which the auto insurance market accounts for some 70 percent, is
on the verge of bleeding due to cut-throat competition and
inflation, the analysts say.
For auto insurers, their so-called combined ratio, which
measures losses and expenses against premiums earned, is close
to 100 percent, according to Morgan Stanley Research. When that
number hits 100 percent, it means the sector is unprofitable.
"On the P&C side, underwriting results continue to
deteriorate...the industry will report an underwriting loss in
2013," Linda Sun-Mattison of Bernstein research said in a note.
That trend is likely to continue next year. Insurers with
too much cash on hand are incentivised to slash prices to try
and win market share, but that will self-correct when the excess
cash is spent, analysts say.
The insurers may find hope for the P&C sector in the
Shanghai free trade zone. The FTZ, which covers an area of
nearly 29 sq km on the eastern outskirts of the commercial hub,
was inaugurated at the end of September.
Officials are promising a more open and streamlined
environment for foreign firms to do business in China, along
with the loosening of policies for a raft of service sectors.
The FTZ will spur development of marine, liability and
health insurance, which will help insurers diversify their
business away from the troubled auto sector, ratings agency
Moody's said in a research note.
In the long run, insurers will also benefit from China's
relaxation of regulations on guaranteed interest rates for life
policies. Allowing insurers to set their own rates in response
to market supply and demand should bolster the sector.
China Life's shares ended down 1.01 percent to HK$19.62 in
Hong Kong trading on Friday, ahead of the company's earnings
announcement. The stock has underperformed the Hang Seng Finance
Index by 22.5 percent year to date.
Ping An fell 0.78 percent to HK$57.05. The shares have
underperformed the same index by 12.4 percent so far this year.
($1 = 6.0820 Chinese yuan)
(Reporting By Lawrence White; Editing by Ryan Woo)