May 25, 2009 / 4:00 AM / 10 years ago

UPDATE 2-China Life sees weak industry premiums, buys equities

* Weaker industry-wide premiums due to change in gov’t norms

* Raises equity holdings, bonds still 80 pct of portfolio

* Will hold onto China Construction Bank shares (Adds quotes, investment strategy, China Construction Bank stake)

BEIJING, May 25 (Reuters) - Chinese industry-wide life assurance premiums will grow marginally or even fall this year, due to a change in government regulations, China Life Insurance Co Ltd (2628.HK) (601628.SS) said on Monday.

China Life, the world’s largest life insurer by market value, also said it had raised its investment in equities in the first quarter but reaffirmed that fixed-income would remain the core of its investment portfolio despite a surge in stock markets.

Wan Feng, the company’s president, said the reason for the subdued outlook was new Ministry of Finance rules coming into force in 2009 that bar insurers from counting income from investment-linked or universal insurance products as premiums.

Many Chinese insurers will have to adjust by shifting their business focus to so-called “participating insurance” products.

“As a consequence, the competitive landscape of the insurance industry will undergo a profound change,” Wan told a shareholders’ meeting.

He said China Life was better positioned than its competitors to respond to the new regulations because participating insurance is the core of its business.

In 2008, China Life collected total premiums of 295.6 billion yuan, of which only 10 billion yuan or so came from universal insurance and a minimal amount from investment-linked insurance.

“Judging from how trends are developing, the overall life insurance industry will not grow as much as last year,” Wan said. In 2008 premiums grew 50 percent.


Separately, Vice-President Liu Jiade said the ratio of equities in China Life's investment portfolio increased slightly during the first four months, when the Shanghai market .SSEC was one of the best-performing in the world.

But fixed-income instruments still accounted for “a little more than” 80 percent of China Life’s assets at the end of March, down from 85 percent at the end of 2008, Liu said.

Citing stock exchange regulations, he declined to say exactly how much of China Life’s portfolio was in equities. The share at the end of last year was roughly 8 percent.

China’s domestic capital markets were shrouded in uncertainty this year, but Liu expressed confidence in their long-term prospects.

China Life last month reported a 55 percent increase in net profit in the first quarter as the stock market rally boosted investment returns.

Despite the better tone to equities, Chairman Yang Chao said China Life would stick to bonds and would not change its prudent investment strategy.

A unit of China Life was among the buyers of $7.3 billion worth of shares in China Construction Bank (601939.SS) that Bank of America (BAC.N) sold earlier this month.

Yang said the shares were in the portfolio category of “hold for sale” and were not subject to a lock-up period. He did not elaborate. (Reporting by Michael Wei and Alan Wheatley; Editing by Ken Wills and Muralikumar Anantharaman)

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