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April 17 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed China Life Insurance Company Limited’s (China Life) Insurer Financial Strength (IFS) Rating at ‘A+'. The Outlook is Stable.
The rating reflects China Life’s well-established franchise, strong distribution capability, and sound risk-based capitalisation. The rating also factors in implicit capital and policy support from China’s Ministry of Finance, in light of the state’s majority ownership and the insurer’s large policyholder base of more than 100 million long-term policyholders. These strengths are, however, moderated by the insurer’s volatile earnings performance, risk concentration in China and keen competition.
China Life continues to focus on promoting regular-premium policies, which provide the company with sustainable growth. It maintains the leading position in China’s life insurance market with a market share of 30.4% by 2013 gross premiums. One-year new business value increased 2.2% in 2013, despite a fall of 8.8% in first-year premiums. This was because higher sales of more profitable long-term regular-premium products helped offset the overall volume decrease in sales of new policies.
China Life’s profitability remains sensitive to investment performance. Pre-tax return on assets was 1.5% in 2013, compared with 0.6% in 2012. This mainly reflected its improved investment yield of 5% in 2013, compared with 2.9% in 2012, as a result of better spread income and much reduced impairment losses. That said, China Life incurred significant valuation losses in fixed-income securities (under the available-for-sale category) due to higher market interest rates. Its investment yield would be about 3.5%, if fair value losses recognised in other comprehensive income were included.
China Life maintains reasonable risk appetite, with deposits and bonds accounting for 83% of its total investments at end-2013. Equity exposures remained reasonably low at about 10% of invested assets or 0.85x balance-sheet capital. Investments in less liquid financial products such as trust schemes and wealth management products were modest at less than 0.5% of invested assets at end-2013.
China Life’s capital buffer remains adequate to absorb potential earnings volatility, in Fitch’s view. Its equity-to-assets ratio was among the highest in China at 11.3% of total assets at end-2013 and the regulatory solvency margin ratio was steady at 226.2% at end-2013 (235.6% at end-2012). China Life is less reliant on sub-debt issuances to support its solvency ratio compared with other Chinese peers. Financial leverage was moderate with an adjusted debt-to-capital ratio of 23.4% at end-2013.
Fitch considers that a rating upgrade is unlikely in the near-to-medium term in light of China Life’s geographic concentration in China. Key rating triggers for a downgrade include perceived weakening in sovereign willingness or capability to support China Life, substantial deterioration in capitalisation with the regulatory solvency margin ratio falling to below 150% on a sustained basis, and an adjusted debt-to-capital ratio at above 30% on a sustained basis.