We issued an updated research report on China Life Insurance Co. Ltd. LFC on Aug 31, 2015.
China Life’s earnings improved in the first half of 2015. The company’s strength lies in its robust market position and organic growth initiatives. Product upgrades, higher life insurance sales, growth in premiums and strong score with credit rating agencies are also impressive.
China Life has the most extensive distribution and service network among all insurance companies operating in China. Also, the company constantly upgrades its existing services. These developmental factors are expected to enable China Life to reach out to potential clients and help in generating new businesses while effectively managing its existing clients. The company’s incessant efforts to diversify its business are also helping it to reduce operational risks.
The company has witnessed growth in premiums earned for quite some time and the first half of 2015 was also no exception. The investment income of China Life has also shown substantial improvement over the past few years. As a result, net investment yield also remained positive. Additionally, the company has made market-oriented investments in the domestic and international space, and diversified its investment strategies, which have led to improved results. Solvency ratio also improved due to increase in comprehensive income. The company also scores strongly with the credit rating agencies.
However, China Life is substantially exposed to market risks as the majority of its investments are limited to China. This makes the company highly vulnerable to a downturn in the Chinese economy. Further, the investments outside China are exposed to foreign exchange risks along with volatility in the concerned markets. The company is also burdened with increased expenses that might weigh on its profitability going ahead. Additionally, weak operating cash flow can deteriorate the cash balance of the company, thereby weakening its balance sheet and financial position.
China Life currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the insurance space are Primerica, Inc. PRI, StanCorp Financial Group Inc. SFG and Cigna Corp. CI. All three stocks hold a Zacks Rank #2 (Buy).
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