China Life Insurance Company (China Life) announced today that it will issue 38 billion yuan ($6 billion) of subordinated debt throughout the year.
The world’s largest life insurer by market value posted its most egregious quarterly profit dip on March 26. China Life reported that fourth-quarter net profit plunged 82 percent to 1.6 billion yuan when compared with the same period last year. The company was racked by a concoction of lower than expected investment returns coupled with slower growth and economic and market uncertainty.
Pending an approval by shareholders, the issuance would add 50 percentage points to China Life’s solvency margin.
It was a corrosive year for China Life who’s overall profit fell nearly 46 percent. The large drop for the year was precipitated by the practice of Chinese insurance companies to invest 10 percent of their assets in equities, which were hit hard by a 22 percent slump in the domestic stock market.
Reflecting slower growth, China Life’s premium income in the first two months of the year fell 6.2 percent from the same period last year to 79.4 billion yuan. According to an analysis by Credit Suisse, China Life’s market share fell a third last year from a dominant 70 percent in 2000.
There are, however, reasons to be optimistic. China Life’s Vice President, Liu Jiade expects profitability to greatly improve throughout 2012 and China Life shares have gained over 7 percent during the last three months propelled by a growing global appetite for riskier assets. Shares rose 2.7 percent on Tuesday on the heels of the issuance announcement.