OREANDA-NEWS. Fitch Ratings has affirmed China Life Insurance Company Limited's (China Life) Insurer Financial Strength (IFS) Rating at 'A+'. The Outlook is Stable.

KEY RATING DRIVERS
The rating 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 continues to focus on promoting regular-premium policies and policies with risk protection features for better profit margins. One-year new business value increased 9.2% in 2014 from a year earlier, faster than the 5.4% growth in first-year premiums, as a result of greater sales of more profitable long-term regular-premium products. Its market share by gross premiums decreased to 26.1% in 2014 from 30.4% in 2013, but China Life remains the largest life insurer in China.

China Life's profitability remains sensitive to investment performance. The company's equity holdings are likely to contribute to fluctuations in earnings and equity. Its pre-tax return on assets improved to 1.9% in 2014 and 1.5% in 2013, compared with 0.6% in 2012. This mainly reflected the rise in investment yield to 5%-5.5% in 2014 and 2013, from 3% in 2012, as a result of better interest income and much reduced impairment losses.

The company's capital buffer remains adequate to absorb potential earnings volatility. Its equity-to-assets ratio was among the highest in China at 12.8% at end-2014 and its regulatory solvency ratio was 295%, well above the regulatory preferred benchmark of 150%. Financial leverage (debt to the sum of debt and equity capital) was moderate at 19% at end-2014.

China Life maintains reasonable risk appetite, with bonds, cash and bank deposits accounting for 79% of its total investments at end-2014. Equity exposures were 13% of invested assets or about 1x balance-sheet capital. Alternative investments, such as infrastructure and real estate debt investment plans and trust schemes, remained modest at less than 5% of invested assets at end-2014.

Fitch does not factor in state support in China Life's standalone 'A+' IFS rating. Fitch considers that, if necessary. there is a high probability that China's Ministry of Finance would provide capital and/or policy support because of the state's majority ownership of China Life and the insurer's large base of more than 100 million long-term policyholders.

RATING SENSITIVITIES
An upgrade is unlikely in the near future because the rating is constrained by China's sovereign rating (A+/Stable). Conversely, if the rating on China were lowered, the rating on the insurer is also likely to be lowered. Other rating triggers for a downgrade include deterioration in the regulatory solvency ratio to persistently below 180%, and an adjusted debt-to-capital ratio at above 30% on a sustained basis.