OREANDA-NEWS. Fitch Ratings has affirmed China Life Insurance Company Limited's (China Life) Insurer Financial Strength (IFS) Rating and Long-Term Issuer Default Rating at 'A+'. The Outlook is Stable. Fitch has also affirmed the rating of China Life's USD1.28bn 4% subordinated notes due 2075 (which may be extended) at 'A-'.

KEY RATING DRIVERS

The rating affirmation reflects China Life's well-established franchise, strong distribution capability and sound risk-based capitalisation. These strengths are, however, counterbalanced by the insurer's risk concentration in China and keen competition.

China Life's capital buffer remains adequate to absorb potential earnings volatility. Its equity/assets ratio was among the highest in China, at 11.8% at end-1H16, and the regulatory comprehensive solvency ratio was 329.1%, well above the 100% regulatory minimum. Financial leverage, as measured by the ratio of debt to the sum of debt and equity capital, was a moderate 19.2%.

The company's increased equity holdings are likely to contribute to fluctuations in earnings and capitalisation. Equity investments increased to 16.8% of total investments at end-1H16, from 12.9% at end-2014, representing 1.3x balance sheet capital. The ratio would be 1.4x if the planned CNY23.3bn acquisition of a 23.7% stake in China Guangfa Bank Co., Ltd. (BB+/Stable) were included. Alternative investments, such as infrastructure and real-estate debt investment plans and trust schemes, were still modest at 5%-6% of invested assets.

China Life remains China's largest life insurer, with a market share of 20.6% by 1H16 gross written premiums. High 68.3% yoy growth in first-year premiums and efforts to expand in more profitable long-term regular-premium products drove a strong 50.4% yoy increase in new business value.

China Life's profitability remains sensitive to investment performance. Pre-tax annualised return on assets decreased to 1.1% in 1H16, compared with 2.0% in 2015, mainly due to falling investment yields as a result of weak equity market performance.

RATING SENSITIVITIES

An upgrade is not probable in the near future because the rating is already on a par with that of the Chinese sovereign (A+/Stable). Conversely, if the rating on China was lowered, the rating on the insurer is likely to follow. Other rating triggers for a downgrade include significant increase in asset risk, deterioration in China Life's capitalisation as measured by Fitch's Prism Factor-Based Model being consistently below the 'Strong' category and an increase in financial leverage above 30% for a prolonged period.