China Life's High Premiums Earned Impress, Costs a Drag
We issued an updated research report on China Life Insurance Co. Ltd. LFC on Dec 7, 2015.
Having the most extensive distribution and service network in China, the company enjoys an upper hand in terms of market share. While China Life alone occupies nearly 50% of the domestic market, the others jointly make up for the remaining. However, it is noteworthy that new entrants in the life insurance market, which also includes foreign entities with greater access to higher capital and better technology than China Life, are a threat to the company. Nevertheless, China Life’s constantly upgrades its products and services, which positions it better to expand its scale of services and boost operating efficiency. Moreover, the company is the first Chinese insurer to obtain a private equity fund license – a move that has placed it advantageously.
Additionally, premiums have increased over the past few years and the first nine months of 2015 were no exception. Being the main source of business for an insurance company, premium increases are essential for top-line growth in the long run. China Life’s investment portfolio also remains strong with it recording consistent improvement in investment income over the past few years. Further, the company scores strongly with the credit rating agencies.
However, the company’s significant exposure to market risks raise caution. As the majority of the company’s investments are limited to China, it is highly vulnerable to any downturn in the Chinese economy. Additionally, increase in expenses is another woe. China Life needs to strengthen its cost-management initiatives to avoid the negative impact of rising expenses on its financials in the long term due to capital erosion. Moreover, weak cash flow indicates the company’s waning operating efficiency. A continued trend of lower cash flows can deteriorate the cash balance of the company, thereby weakening its balance sheet and financial position.
China Life currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the life insurance space include American Equity Investment Life Holding Company AEL, Health Insurance Innovations, Inc. HIIQ and Primerica, Inc. PRI. All three stocks hold a Zacks Rank #2 (Buy).
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CHINA LIFE INS (LFC): Free Stock Analysis Report
AMER EQUITY INV (AEL): Free Stock Analysis Report
HEALTH INS INN (HIIQ): Free Stock Analysis Report
PRIMERICA INC (PRI): Free Stock Analysis Report
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