New Accounting Standards to Widen Share Gap of Life Insurers

China Insurance Regulatory Commission (CIRC), the top Chinese insurance regulator, is set to unveil premium revenue life insurers in China gained last year under the new accounting standards.

According to the new standards, premium insurers in the market captured in 2009 will consist of premium revenue and premium deposits; and premium deposits indicate the part they obtained via universal life insurance and investment-linked insurance investment accounts. Under the standards, their overall premium revenue size will drop, but the net profit and net assets will only be slightly affected as adjustments in reserve items will offset the impact the new standards may deliver on their net profit and net assets, said a senior official with the CIRC.

The premium affirmation ratio for them will be different due to different products they focus on but the average for last year is estimated by industry observers at about 83%. In detail, under the new accounting standards, the market share of the nation's biggest life insurer China Life Insurance Co., Ltd. (SHSE: 601628 and SEHK: 2628) in domestic life insurance sector last year will rise to over 40 percent from 36.2 percent, followed by China Pacific Life Insurance Co., Ltd., the life insurance unit of China Pacific Insurance (Group) Co., Ltd. (CPIC, SEHK: 2601 and SHSE: 601601), and New China Life Insurance Co., Ltd., with the shares each inching up by one percent to about nine percent.

Whereas, that captured by Ping An Life Insurance Company of China, Ltd., the life insurance of Ping An Insurance (Group) Company of China, Ltd. (Ping An, SHSE: 601318 and SEHK: 2318), and Taikang Life Insurance Co., Ltd. will dropped to about 11 percent and five percent from 16 percent and eight percent, respectively.

"China Life, which focuses on participating insurance, will benefit much from the new standards as almost all revenue it gained from such insurance will be counted in its premium revenue," said some securities brokers, "its net assets for 2009 is expected to be lifted by 40 percent to 60 percent, with the net profit to be raised by about 30 percent, too. The net profit of Ping An is predicted to surge about 20 percent and that of CPIC will climb, too.

Driven by the new accounting standards, life insurers in the market attach more importance to participating insurance this year, with the premium revenue obtained from such insurance surging 53 percent year on year in the first quarter of 2010 and accounting for 75.5 percent of the total they captured during the three months, up six percentage points from the end of last year.