On Jan 2, 2015, we issued an updated research report on China Life insurance Co. Ltd. (LFC). We believe that company’s robust market position and business development initiatives position it to generate long-term growth. However, competitive pressure, waning cash flow levels and limited global exposure remain headwinds.
China Life has the most extensive distribution and service network among all insurance companies operating in China. The company takes care of its huge clientele through a strong customer service network with dedicated representatives operating its innumerable sales outlets along with its customer service counters and help-lines that operate in every major city of China. The company also intends to enhance its individual agent channel and business mix to accelerate growth.
The investment income of China Life has shown substantial improvement over the past few years as well as the first nine months of 2014. The improvement in the economic scenario is expected to aid investment income further. The company also scores strongly with the credit rating agencies.
China Life was the first Chinese insurance company to obtain a private equity fund license and enter the private equity business in Aug 2011. As the leading life insurance company with a strong enterprise value, China Life is benefiting from this opportunity. The company’s strong brand name and goodwill made it easier for it to achieve success in the new field than lesser-known insurance companies. Moreover, diversification of business has reduced the operational risks.
However, as the majority of its investments is limited to China, the company brings upon itself substantial market risks. Further, the investments outside China are exposed to foreign exchange risks along with volatility in the concerned markets.
Moreover, China Life faces intense competition from both domestic and foreign companies. New entrants in the life insurance market, including pension companies as well as foreign companies, with greater access to higher capital and better technology than China Life, are also putting substantial competitive pressure on the company.
The company’s cash flow level has also been declining due to higher liquidity requirements. Additionally, claims payable that increased in the first nine months of 2014 is expected to affect cash flow levels adversely. China Life has been incurring higher-than-expected benefits and expenses owing to increased expenditures in its individual, group and short-term insurance businesses. All these are expected to offset the positives to some extent.
China Life currently holds a Zacks Rank #2 (Buy). Other stocks investors might be interested in include American Equity Investment Life Holding Co. (AEL), StanCorp Financial Group Inc. (SFG) and Lincoln National Corp. (LNC). While American Equity and StanCorp Financial sport a Zacks Rank #1 (Strong Buy), Lincoln National has the same Zacks Rank as China Life.
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