China Life Insurance is set to keep increasing its exposure to longer-term government bonds, but is concerned about a potential rise in onshore credit defaults. It is also looking to more opportunities in A-shares due to rising interest in the asset class among broader Chinese investors, the group management said during an online financial results’ media briefing on Friday (March 26).

The state owned insurer said it had increased its allocation mainly into government bonds with a long duration to further lengthen the duration of assets and narrow the duration gap between assets and liabilities. These moves fall broadly in the same direction of those expressed by several other giant insurers such as Chinese rival Ping An Insurance.

Wang Bin,
China Life Insurance

“In 2020, no credit defaults have been seen in our fixed income portfolio but the default worry [will] stay as one the biggest challenge for investors,” said group chairman Wang Bin, highlighting the importance of monitoring the credit default level this year.

According to the life insurer's annual report for 2020, its investments into bonds accounted for 41.97% of its overall portfolio, 2.49 basis point higher than the 39.48% reported for 2019. This was part of its broader investments into debt, which stood at 75.12% versus 74.85%. 

Wang said the gradual rise in bond investments is likely to remain the same, given that Covid-19 could still bring uncertainties in China and abroad.

Its debt financial investments are mainly concentrated in sectors such as transportation, finance, public utilities and energy, with the specific companies mostly being large central-owned and state-owned enterprises.

EQUITY PUSH

Zhang Di, head of investment at China Life, added that the prospects for the local equity market have been improving for some time and look set to continue, partly as a result of China's economy bouncing back faster than expected. 

He said China's equity markets are enjoying "growing capital market maturity", without specifying what he meant. This may be a reference to the increasing mutual funds, hedge funds and institutional investor participation in the country's stock markets, which could help to offer more opportunities in the market. As a result, the insurer is particularly focusing on equity assets with the potential to see their returns expand as economic conditions improve, to try and raise its overall investment yield. 

As of December 31, 2020, China Life Insurance’s total assets under management stood at Rmb4.1 trillion ($626.75 billion), 14.6% higher than the end of 2019. Meanwhile its net investment income stood at Rmb162 billion, up 9.2% year-on-year.

However, a combination of an overall decline in local interest rates during 2020 and the redemption oa a series of existing investment assets meant the insurer's net investment yield stood at 4.34%, a drop of 27 base points from 2019.

COMPLIANCE PRESSURE

China Life said it is also investigating alleged financial fraud concerning its branch office at Nenjiang, Northeast China's Heilongjiang Province after a person who claimed to be an employee of the company posted an online complaint using their real name.

A 33-year-old female employee, who had worked at the company for 16 years, said in her self-recorded video that a former Nenjiang branch manager named Sun Xiaogang was engaging in insurance fraud. This led Sun to be investigated for fraud and corruption by late February.

Wang told in the media briefing that the investigation into the incident is coming to an end and China Life will provide the public a statement in due course. He added that the whole group has adopted stricter internal compliance procedures last year.