Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Equity Bottom-Up

China Life Insurance Co H / Equity Bottom-Up

China Life’s third-quarter results included a 60% drop in net profit against the year-ago period, while its revenue increased 7.7%. The net profit decline was attributable to a 56% growth in claim costs, a 25% growth in reserve expense, and a 50% increase in commission expense. During the third quarter, claims expenses rose to 56% of total net earned premium on maturity payments. Owing to China Life’s strategic transformation toward the agency channel, commission expense as a percentage of net earned premium increased to 13% from 10% in the year-ago period. The increases in claims, commissions, and reserve expense were partially offset by lower general and administrative expense, thanks to growing scale and lower surrender expense, helped by product mix improvement toward longer-term protection-focused insurance policies.We maintain our HKD 22 fair value estimate, and the stock is currently fairly valued, as the firm's vulnerability to capital markets has been largely priced in.Analyst: Iris Tan, CFA

China Life’s third-quarter results included a 60% drop in net profit against the year-ago period, while its revenue increased 7.7%. The net profit decline was attributable to a 56% growth in claim costs, a 25% growth in reserve expense, and a 50% increase in commission expense. During the third quarter, claims expenses rose to 56% of total net earned premium on maturity payments. Owing to China Life’s strategic transformation toward the agency channel, commission expense as a percentage of net earned premium increased to 13% from 10% in the year-ago period. The increases in claims, commissions, and reserve expense were partially offset by lower general and administrative expense, thanks to growing scale and lower surrender expense, helped by product mix improvement toward longer-term protection-focused insurance policies.We maintain our HKD 22 fair value estimate, and the stock is currently fairly valued, as the firm's vulnerability to capital markets has been largely priced in.Analyst: Iris Tan, CFA

China Life's Third Quarter Saw Pickup in Premium Growth