Mainland-based insurer fosters new product mix to combat profit squeeze

Mainland-based insurer China Pacific Insurance (Group) Co Ltd (CPIC) will foster a product mix geared to long-term endowment and a medical insurance to tap the long-term regular premium business potential and combat a profit squeeze amid slower economic growth, falling investment returns and soaring operating costs.

"The central government plans to introduce tax-deferred endowment insurance on the mainland by the end of this year, and is also studying how to utilize medical funds to enlarge the mainland's commercial insurance market. CPIC will study the future market demand and development patterns of those endowment and medical insurance products," CPIC Chairman Gao Guofu told a press conference on Monday.

"We have to focus on the regular premium business and improve the group's business structure and quality," he said.

"Based on the imminent launch of central government new policies concerning endowment and medical insurance products, we will take these into consideration when we review our three-year rolling capital requirement regarding the life and property insurance products," Gao said.

Beleaguered by various unfavorable factors such as reduced investment gains, slowdown of business growth and rising operating costs, CPIC reported a 54.6-percent slump in net profit to 2.63 billion yuan ($410 million) in the first half of 2012 compared to a year ago. It recommended no interim dividend to investors.

Besides expanding into long-term insurance premium products, the insurer also predicted that investment returns in the second-half would improve.

"The central government's recent move to allow insurance companies to invest in government and corporate bonds as well as other investment products enhances the group's asset allocation flexibility. The group will prudently invest in fixed-income assets based on the risk-adjusted returns," said Yu Yeming, chief executive officer of Pacific Asset Management Co Ltd - CPIC's investment arm.

"The mainland economy is slowing down and the A-share market performance in the second-half is still uncertain. Therefore, the insurer's vision of a business turnaround in the second half of 2012 may be too optimistic," Core Pacific-Yamaichi head of research, Castor Pang, told China Daily.

Other investment banks, such as Goldman Sachs, Morgan Stanley and Credit Suisse are relatively more optimistic, saying the insurer's embedded value generated from its long-term businesses is still within their forecast. All these three investment banks gave the insurer's stock a "buy" rating.

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(HK Edition 08/21/2012 page2)