26.11.2012 08:01
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China Life Insurance Co Ltd -- Moody's affirms China Life's A1 rating with a positive outlook

Hong Kong, November 26, 2012 -- Moody's Investors Service has affirmed the A1 insurance financial strength rating of China Life Insurance Co Ltd with a positive outlook.

RATINGS RATIONALE

The affirmation of China Life's A1 rating continues to reflect its strong brand, exceptional market position and vast domestic distribution network. It also has a liquid investment portfolio, mainly consisting of government and government agency bonds and listed equities. Its capitalization, which has somewhat deteriorated because of weak earnings and dividend payout, is still solid.

Moody's has maintained a positive outlook on China Life, solely based on our view of strong support from the Chinese government, which has an effective stake of 68.4% in the company. The Chinese government bond rating is Aa3 with a positive outlook.

Nonetheless, Moody's notes several factors that are putting negative pressure on the standalone credit profile of China Life, namely, the company's 1) volatile profitability; 2) increasing financial leverage; and 3) weak premium growth.

First, for the first nine months of 2012, China Life's net income attributable to equity holders fell 55.5% to RMB7.6 billion, mainly because of significant impairment losses from its equity investment portfolio. As a result, its annualized, year-to-date return on average capital in 3Q 2012 declined to 4.1% from 8.5% in 2011.

Second, because of the negative impact of its weakened earnings on its organic capital growth, China Life has issued RMB68 billion of subordinated debt since November 2011 to replenish its solvency capital. Consequently, its pro forma financial leverage is estimated to have increased to around 25%-30% currently. This is the upper limit of the financial leverage acceptable for the current baseline credit assessment (its stand-alone credit profile).

Third, China Life's premium growth has been under pressure because of disruptions in the bancassurance channel, which contributed 45.5% of its gross written premium in 2011. This stems mostly from the competition of wealth management products offered by banks and regulation changes on the stationing of insurance personnel at bank branches.

Given the negative pressure on the company's business and financial profiles, Moody's would consider changing China Life's rating outlook to stable from positive if (1) profitability remains weak, which could be due to volatile investment income, missteps in underwriting or regulatory risk, such that, for instance, return on capital consistently falls below 8%; (2) there is a material increase in the company's adjusted financial leverage to more than 30%; and/or (3) its capitalization significantly and consistently weakens, such that its adjusted capital-to-assets ratio falls below 10%.

On the other hand, Moody's will consider upgrading China Life's rating if: (1) China's sovereign rating is upgraded; (2) China Life maintains its capital adequacy such that its adjusted capital to assets ratio is above 16% or its local solvency ratio is above 250%; (3) its profitability improves, with a return-on-capital consistently above 12%; (4) it achieves successful diversification of its distribution channels and product offerings; (5) it improves its asset quality by reducing its equity investments and exposure to the banking sector; and (6) it achieves continued improvement in its risk management.

RATING METHODOLOGY

The principal methodology used in rating China Life was "Moody's Global Rating Methodology for Life Insurers", published in May 2010, and "Government-Related Issuers: Methodology Update", published in July 2010.

Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

ABOUT CHINA LIFE

Headquartered in Beijing, China Life Insurance Co Ltd is the largest life insurance company by premium income in the country, offering term life, whole life, endowment, annuities, universal life, accident, and health insurance products. As of 30 June, 2012, China Life's total assets amounted to RMB1.8 trillion. Its shareholders' equity totaled RMB213.5 billion.

REGULATORY DISCLOSURES

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Sally Yim VP - Senior Credit Officer Financial Institutions Group Moody'sInvestors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Stephen Long MD - Financial Institutions Financial Institutions Group JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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MIS, a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Shareholder Relations -- Corporate Governance -- Director and Shareholder Affiliation Policy."

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This credit rating is an opinion as to the creditworthiness or a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be dangerous for retail investors to make any investment decision based on this credit rating. If in doubt you should contact your financial or other professional adviser.

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