On Jan 9, we retained our Neutral recommendation on
China Life Insurance Co. Ltd.
) as strong market position, growth in premiums and investment
income are expected to outweigh headwinds like higher expenses
and declining cash flow.
Why the Reiteration?
This life insurance company with a Zacks Rank #4 (Sell) has the
most extensive distribution and service network among all
insurance companies in China. Additionally, the company has been
continuously enhancing its customer service network to retain its
China Life also boasts a solid brand value, impressive market
standing, widespread domestic distribution network, strong
risk-based capitalization and liquidity in investment portfolio,
which allows it to retain the confidence of rating agencies. The
company was the first insurance company in China to obtain a
private equity fund license and foray into the private equity
On the tepid side, China Life's cash flow has been declining for
quite some time reflecting the company's waning operating
efficiency and weakening balance sheet. This in turn will impede
the company from undertaking long-term growth strategies.
Moreover, China Life is exposed to foreign exchange risk in
addition to volatility in the concerned market.
Higher-than-expected benefits and expenses within its individual,
group and short-term insurance businesses also amplify operating
Additionally, China Life's investments are limited to China.
Thus, the company's operations are susceptible to a decline with
a downturn in the Chinese economy. Further, with the growing
Chinese insurance industry, China Life encounters threats from
potential new entrants.
Nevertheless, strong brand name and goodwill have helped the
company in establishing new businesses successfully and have also
bolstered premium growth. This trend of higher premiums has
continued in the first nine months of 2013 as well.
In the last reported quarter, operating earnings of China Life
stood at RMB0.27 per share (US$0.4 per ADR), rebounding from a
loss of RMB0.08 per share (US$0.01 per ADR) in the third quarter
Other Stocks to Consider
Some better-ranked stocks in insurance industry include
Protective Life Corporation
Reinsurance Group of America Inc.
). All three stocks carry a Zacks Rank #2 (Buy).
ACE LIMITED (ACE): Free Stock Analysis Report
CHINA LIFE INS (LFC): Free Stock Analysis
PROTECTIVE LIFE (PL): Free Stock Analysis
REINSURANCE GRP (RGA): Free Stock Analysis
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