We issued an updated research report on China Life Insurance Co. Ltd. LFC on May 26, 2015.
Recently, the company reported first-quarter 2015 earnings that improved year over year on higher investment income and premiums.
China Life has the most extensive distribution and service network among all insurance companies operating in China. Additionally, the company has established a strong customer service network with dedicated representatives operating its innumerable sales outlets along with its customer service counters and helplines that operate in every major city of China.
The investment income of China Life has shown substantial improvement over the past few years and the first quarter was also no exception. Also, the company has been making market-oriented investments in the domestic and international space. China Life has diversified its investment strategies as well, which have led to improved results.
China Life’s solid brand value, impressive market standing, well-established franchise, wide-spread domestic distribution network, strong risk-based capitalization and liquidity in investment portfolio, have allowed it to retain the confidence of rating agencies.
China Life has been witnessing an increase in net premiums over the past few years. Given that premiums are the main source of business for an insurance company, an increase in premiums is essential for its top-line growth in the long run. Thus, a trend of increase in premiums is likely to bolster the company’s growth going forward.
However, China Life’s cash flow from operating activities has been declining gradually and the first quarter of 2015 also continued with the same. This trend of reducing operating cash flow indicates the company’s decreasing operating efficiency. Moreover, China Life has been incurring higher-than-expected operating expenses owing to increased expenses in its individual, group and short-term insurance businesses. The company needs to strengthen its cost management initiatives to avoid the negative impact of rising expenses on its financials in the long term.
Moreover, China Life is substantially exposed to market risks as the majority of the company’s investments are limited to China, making it highly vulnerable to a downturn in the Chinese economy.
China Life currently carries a Zacks Rank #3 (Hold). Better-ranked stocks from the life insurance space include American Equity Investment Life Holding Co. AEL, Sun Life Financial Inc. SLF and Manulife Financial Corporation MFC. While American Equity Investment and Sun Life Financial sport a Zacks Rank #1 (Strong Buy), Manulife holds a Zacks Rank #2 (Buy).
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