Insurance Premium Incomes Post First Drop in Six Years
China’s insurance companies posted the first drop in premium incomes since 2012 as the industry turned in a mixed performance in the first half, showing the effects of the sector’s transformation to prudent risk management after years of wild expansion.
Insurance premium incomes fell 3.33% in the first half of 2018 to 2.24 trillion yuan ($328 billion), according to the China Banking and Insurance Regulatory Commission (CBIRC). Premium incomes of life insurance companies dropped by 8.5% to 1.69 trillion yuan, while property insurance premiums rose 14% to 544.2 billion yuan.
Among the 79 insurers that have disclosed second-quarter solvency reports, 43 companies were profitable and 36 had losses.
The results showed that most large insurance companies have increasingly optimized their premium income structures, matching assets and liabilities and managing controllable risks. Small-to-medium insurers were plagued by falling premium incomes, insufficient investment capacity and poor management.
Since the beginning of last year, the CBIRC has issued a flurry of new regulations, aiming to crack down on the issuance of short-term life policies, which are often used to fund risky acquisitions and asset-buying sprees.
In the first-half results, small-to-midsize insurers’ profitability lagged significantly behind that of larger insurers. The four biggest Chinese insurers, China Life Insurance Co., Ping An Insurance, China Pacific Insurance (Group) Co. and New China Insurance Co., posted total net profits of 65.9 billion yuan in the first half, or about 77.8% of the industry total.
Insurers with the biggest losses were those that pursued aggressive expansion strategies in earlier years, including Sino Life Co., Tian An Life Insurance Co., Happy Life Insurance Co. and Qian Hai Life Insurance Co., all of which had net losses of more than 1 billion yuan in the first half.
Even though the life insurance industry as a group reported an 8.5% decline in first-half premiums, six listed insurers still managed growth of more than 10%. That suggests many of the small-to-midsize insurers had a much steeper plunge than the industry average.
Small-to-midsize insurers often rely heavily on banks as the main channel for distributing their products because they have lower brand awareness and smaller client bases, said Zhu Yin, a Moody’s vice president and senior credit officer.
While Chinese regulators asked insurers to shift to a more sustainable product mix and limit high-risk investment allocations, small-to-midsize insurers often find themselves with very limited marketing capability. The shift to longer-term protection-type products requires much stronger marketing and selling teams, which many smaller firms lack, a person at a large insurer told Caixin.
A notable trend in the first half was the comeback of universal life insurance products, which are essentially high-yield wealth-management products and usually promise short-term gains.
Several insurers that had issued universal life insurance to raise funds to invest in stocks of listed companies were punished last year. As a result, universal life products declined by more than half in the first half of 2017. But these products rebounded and posted a gain of 26.7% in the first half this year.
Contact reporter Yang Ge (firstname.lastname@example.org)
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