China Life Insurance: NBV Growth Ahead of Expectation, Agent Headcount Stable

Following largely in-line results, we retain our fair value estimate for China Life 601628 at CNY 19 per A share and HKD 20 per H share. With the H shares trading at a sharp discount to the A shares, we prefer the H share over the expensive A share. First-half new business value, or NBV, growth increased to 19.9% year on year from the 7.7% growth in the first quarter, beating our expectation for about 15.0% growth. NBV growth was driven by the 13% and 122% respective year-on-year growths in agent and bancassurance channels, as customers rushed to buy the last batch of high-yield savings products before the pricing rate cut in end-July.

Similar to peers, first-year premium accelerated to 23% year on year, but we expect premium growth to moderate in the third quarter after the recent July pricing rate cut. Despite a stronger-than-expected first-half NBV growth, we expect the second half NBV growth to moderate along with slowing premium growth. However, the stable agent headcount and NBV margin should be able to support a double-digit growth in NBV for 2023. Agent headcount has largely stabilized from the March level at around 660,000. First-half NBV margin was largely flat at 30.2%, compared with the 30.4% in the year-ago period. We estimate NBV per agent improved over 30% year on year.

First-half net profits under old accounting rules were volatile, declining 36% year on year on CNY 12.8 billion in asset impairment losses related to unfavorable stock market performance and CNY 5.9 billion reduction due to a change in actuarial assumptions and lower government bond yield. In line with our expectations, the IFRS 17- and IFRS 9-based net profit declined 8% year on year to CNY 36.151 billion. We suspect the lower earnings volatility was mainly due to the expenses related to the insurance liability reserve on lower 10-year government bond yield and the change in noneconomic assumptions were absorbed by contractual service margin, which did not impact profit and loss.