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Morningstar | China Life Remains in Business Transformation Phase

As the dominant life insurer with 19% market share, China Life Insurance benefits from enviable scale and a well-known brand. However, its large scale and state-owned nature could be a double-edged sword, hampering a swift transition toward value-oriented growth amid fast-changing market dynamics. Given mounting difficulties and heightening rivalry, we believe the company has yet to establish an economic moat.Being the largest and oldest state-owned life insurer, China Life enjoys a reputable brand, giving it a leg up in sales of commodity-like insurance products. It boasts an extensive network, with 1,495,000 exclusive agents, 85,000 group sales representatives, and 234,000 bancassurance sales representatives domestically. Its huge up-front infrastructure investment, established presence, and rural experience set a relatively high entry barrier. Despite low profitability in these areas, we think China Life is best positioned for ongoing urbanisation and the government’s increasing efforts to boost rural residents’ welfare. The large scale and strong foothold in underpenetrated rural markets translate to industry-leading administration expense for China Life. With industrywide restructuring toward value-focused growth, stricter regulations, and capital requirements, China Life has progressed slowly compared with peers, hampered by its clumsy scale. During the five-year restructuring, agent headcount shrank to 653,000 in 2013 from the peak of 777,000 in 2009 as a result of painful restructuring, while bancassurance premium also contracted 37% in 2014. Thanks to a strong pickup in life insurance demand, China Life's agent force expanded rapidly to nearly 1.5 million in 2016, contributing nearly 80% of new regular premium. However, agent contribution remained low at 40% of new premium, compared with Ping An and China Pacific Insurance, which recorded ratios of around 76%. This leads to a lower-than-peer new business margin and new business value growth. As maturity pressure abates and with favorable policy supports expected in the near future, we expect China Life will be better able to leverage its formidable distribution network and hasten its transition.