China Life 1q09 results

Overview
The largest life insurance company in China with more than 40% market share in 2008 and RMB $1,045B total asset and the largest life insurance company in the world by market capitalization. It has 3 main lines of business: Life, Annuities and Health & Accident. It also operates an asset management company. In 2008, it is developing a new lines of business as an underwriter on fixed security issuance.

1q09 Results (vs 1q08)
=> 1st of all, please note that LFC's 1q09 results is in China Accounting Standard instead of IFRS. And CAS's total assets, liabilities and equity balance are all lower than the balance reported in IFRS.

1. Total Revenue up 4.7% to RMB $116.3B
- Total annualized premium (tradition & investment) up 1.8% to RMB $104B, much lower than Ping An's 43.4% increase.
- Net earned premium up 1.8% to RMB $103.4B;
- Net investment income & gain up 38.3% to RMB $12.5B, inline with my expectation. As the equity market continue to go up while the interest rate stop reducing, I will expect the increase in investment income to be continue in 2q.
- return on net assets up 61.1% to 3.68%, still lower than the average return of the international competitors;

2. Reported EPS up 58.3% to RMB $0.19
- EPS in line with expectation
- Loss ratio up to 72.7% from 72.0%;
- Total expense ratio (excluded impairment & participating dividend) down to 90.7% from 93.9%
- Total expense ratio down to 94.4% from 96.7%.
- In income statement prospective, I am glad to see a decreasing trend in expenses;

3. Balance Sheet (vs 4q08)
- Total assets up 7.8% to RMB $1,067.8B, that is a lot in one quarter for an insurance company;
-Total Equity and AOCI up 8.1% and 8.8% to RMB $145.9B and RMB $ 69.5B, better than my expectation.

Risk
- Increase competition as bank may aggressively expand into insurance market if regulation relax further in future;
- Increase competition as foreign insurance company may get more market share over time;
- Potential investment reture drop due to equity market and weak economy

Comments
Buy, fair value HKG $34.95. No change from the previous review.