Morningstar | We Expect China Life's Transformation Will Accelerate With New Management on Board
As the dominant life insurer with 20% 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 domestically. Despite low profitability in these areas, we think China Life is well 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 and market share-oriented strategy. Agent channel is under difficult transformation and its product mix optimization toward higher margin long-term protection type products is still in early stage. China Life's rapid agent headcount expansion from to nearly 1.6 million in 2017 from 0.6 million in 2013 was halted by tighter policy regulations in 2018. As a result, agent headcound contracted to 1.5 million. Though the company ceased the bancassuance sales of single premium products during the new year opening campaign in 2018, it saw strong growth in short-term savings type products.This led to negative growth in new business value and low underwriting profitability compared with peers. With new management on board and easing maturity pressure, we expect China Life will be better able to leverage its formidable distribution network and hasten its transition.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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