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Banking & Finance

China Life's market share sinks to 20%, from 45% a decade ago

Deregulation helps rivals eat into top insurer's slice

After a rough decade, state-owned insurer China Life says it is determined to remain No. 1.

HONG KONG -- China Life Insurance, the No. 1 player in the fast-expanding Chinese insurance market, is steadily ceding turf to newer rivals emboldened by looser rules on products and investment.

Although the state-owned China Life managed to increase its gross written premiums by 18.3% last year, to 430.5 billion yuan ($62.45 billion), its market share slipped to 19.9%, from 23%.

A decade earlier, the company had been a far more dominant force, controlling 45.3% of the market. While China Life's collected premiums grew by a factor of 1.3 during the same period, the market more than quadrupled, to 2.17 trillion yuan.

"The market reshuffle has to do with a lot of small and medium players aggressively selling short-term policies, as well as wealth management products," Lin Dairen, China Life's president, told reporters on Friday. He noted that the seven largest life insurers commanded over 80% of the market three years ago; now, they control less than 60%.

"Share has been gobbled up by smaller players," said Lin, who is hoping that interventions by the China Insurance Regulatory Commission since last fall might help China Life reverse the tide. The regulator has stepped in to curb sales of short-term offerings and universal life policies -- savings-type products that offer high interest rates, short premium terms, low fees and minimal coverage for policyholders.

When interest rates were falling, such policies were widely promoted as an alternative to deposits, especially after China liberalized insurance pricing in February 2015. This triggered a proliferation of policies promising generous returns -- and attracted a slew of new entrants looking for ready liquidity to fund their acquisition ambitions. Including reinsurers and players handling property and casualty policies, there were 180 insurance companies in China as of 2016, up from 149 at the end of 2014, according to credit rating agency S&P Global.

Beijing-based Anbang Insurance Group -- best known for buying the Waldorf Astoria hotel in New York for $2 billion in 2014 -- only joined the fray in 2010, when it was ranked the lowest in terms of gross written premiums. It leapfrogged to No. 4 last year, topping state-backed New China Life Insurance, which had long been the third-ranked player.

Harnessing innovative technology, Shenzhen-based Ping An Insurance Group held on to the No. 2 spot. But its market share also declined to 12.7%, from 13.1% a year earlier and 17% in 2006.

"The high-return, high-liquidity characteristics of China's universal life products makes them very popular among Chinese policyholders, as reflected in their strong growth since 2014," ratings agency Moody's Investors Service said in a report on March 13. "However, these same features pose considerable risk to some insurers' credit standing."

Concerns include a duration mismatch, as insurers are forced to invest in risky yet long-term assets to achieve targeted returns, while policyholders can surrender their policies at any time with low penalties.

Tightening the reins

Since March 2016, the regulatory commission has been trying to keep new, aggressive players in check. Apart from forcing insurers to cap sales of such products to 50% of their gross premiums by 2019, and 30% by 2021, it has also barred insurers established after January from selling universal life products in their first year of operation.

The commission is thinking about raising industry entry barriers and limiting ownership of insurers as well. "As smaller players are restrained by tighter regulation, bigger players like us will perhaps be able to maintain our market share, or even reverse the downtrend going forward," Lin said, stressing that China Life will strive to maintain its top position.

"That's the bottom line," he said.

China Life plans to expand its product range. Last year, its new business value soared 56.4% to 49.31 billion yuan. However, its net profit attributable to shareholders skidded 44.9% to 19.13 billion yuan, as investment income declined by 22.8% to 108.15 billion due to increased risk aversion among investors.

While two of its rivals have become more generous in handing out cash dividends amid interest rate hikes, China Life maintained its payout ratio of 35.5% and declared a final dividend of 0.24 yuan per share, compared with 0.42 yuan per share a year earlier.

Ping An lifted its full-year dividend for 2016 by 41.5%, to 0.75 yuan per share, taking its total payout ratio to 22%, from 18% a year earlier. China Taiping Insurance proposed a final dividend of 0.1 Hong Kong dollar (1 cent) per share -- its first payout since 2007 -- despite a 24.7% drop in net profit.

China Life's Hong Kong-listed shares closed 1.23% lower on Friday, at HK$24, capping the year-to-date return at 18.8%, while the Hang Seng China Enterprises Index lost 0.1%, bringing the year-to-date figure to 11.5%.

On the other hand, China Life's Shanghai-listed shares ended 1.3% higher, at 24.9 yuan, bringing the year-to-date return to 3.4%. The Shanghai Stock Exchange Composite Index added 0.6%, for a year-to-date return of 5.3%.

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