Tue, Jul 24, 2012 - Page 14 News List

China Life Insurance to outperform: Credit Suisse

SOLID POSITION:Taiwan Ratings was also positive on the insurance firm, lauding its good liquidity, satisfactory operating performance and adequate financial flexibility

By Kevin Chen  /  Staff reporter

China Life Insurance Co (中國人壽) is expected to outperform its peers despite a challenging domestic operating environment, given low liability costs and a much smaller legacy portfolio, Credit Suisse said yesterday.

“While we have not favored Taiwan’s insurance sector for a while, we believe that China Life is much better positioned to thrive in this difficult space,” Credit Suisse said in a report.

The company’s shares closed 1.6 percent lower at NT$27.7 yesterday, but the stock has risen 13.06 percent to date this year, outperforming the TAIEX, which has slid 0.61 percent during the same period.

Insurers in Taiwan are facing a difficult environment, where -decade-long low interest rates and a lack of long-term investment opportunities have driven insurers to focus on fixed-income securities and seek investment opportunities elsewhere in pursuit of higher profitability.

The industry has long pressed for greater flexibility in risk-based capital recognition from the regulators, as well as calling for easing of restrictions on overseas investments.

In the April-to-June quarter, China Life earned NT$1 billion (US$33.25 million) in net income, which was flat from the previous three months. In the first half of the year, net income totaled NT$2.01 billion, or earnings of NT$0.89 per share, the Taipei-based insurer said in a stock exchange filing on Thursday last week.

Credit Suisse said it expected China Life’s investment in China’s Jian Xin Life Insurance Co (建信人壽) — which is a joint venture with China Construction Bank Corp (中國建設銀行) — would see significant growth over the next five years and provide a long-term growth opportunity.

“This joint venture has been profitable and China Life has already raised the capital to fund the venture for the next 3-4 years,” Credit Suisse said. “We estimate the venture could add NT$5-NT$10 per share to China Life’s valuation and this is not yet in our valuation for the stock.”

China Life chairman Alan Wang (王銘陽) told an investor conference in Taipei on May 30 that Jian Xin aims to have 28 branches across China by the end of 2015 and become China’s largest insurer in 10 years.

Credit Suisse has an “outperform” rating on China Life, with a price target of NT$40, implying a 44 percent upside from yesterday’s closing price.

Taiwan Ratings Corp (中華信評), meanwhile, yesterday offered an issuer rating and counterparty credit rating of “twAA-” on China Life, with a stable outlook.

“The ratings on China Life reflect the insurer’s good liquidity, satisfactory operating performance and adequate financial flexibility,” the local arm of Standard & Poor’s Ratings Services said in a press release.

In addition, the insurer has demonstrated a good track record raising funds in the capital market when needed, Taiwan Ratings said.

China Life raised NT$7.3 billion in 2009 after the onset of the global financial crisis and NT$7.5 billion last year, with plans to use the proceeds for future business expansion.

In related news, Cathay Life Insurance Co (國泰人壽) said yesterday it had gained regulatory approval to exclude foreign-currency policies from its overseas investments, giving it more room to invest abroad.

Cathay Life is the first domestic insurer to benefit from the regulatory easing intended to give companies more flexibility in asset allocation as Taiwan’s low interest rates squeeze profitability.

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