China Life’s shift to government bonds pays off

China Life Insurance posted a 15.2% rise in investment assets to Rmb4.7 trillion ($738 billion) in 2021 as it increased allocation to government bonds and sold off equity assets. 

Net investment yield was 4.38%, and net investment income was Rmb188.8 billion, a 16% increase from 2020, the company said in a statement on Friday (March 25) announcing its annual results.

The firm’s allocation to bonds rose from 41.97% in 2020 to 48.20% in 2021, while the percentage of its investment in debt-type financial products fell from 11.08% to 9.41%.

In its annual results announcement last year, the state-owned insurer said that it was looking to increase allocation into longer-term government bonds and A shares.

However, the percentage of its investments in stocks and funds excluding money market funds was reduced from 11.31% in 2020 to 8.75% in 2021.

“The A-share market was volatile, with significant sector divergence,” the statement wrote. “The company has always adhered to its strategic consistency, prioritised asset-liability management in using insurance funds, firmly implementing its medium- to long-term strategic plan of asset allocation, and making flexible tactical allocations in response to the market change.”

The insurer attributed its seizing of opportunities provided by high interest rates in the first half of 2021 and increasing its allocation to long-duration assets such as government bonds, as well as managing equity risk exposures as reasons for the investment gains.

It also said that it “strengthened the innovation in alternative investment models”. The company declined to comment on whether it had increased allocation to alternatives.

Insurers globally have embraced alternative investments in recent years as fixed income yields trended low and asset classes such as private debt helped investors diversify while providing decent returns.

AIA Group for instance has looked towards infrastructure investment particularly in Asia, particularly in local currency assets and areas such as renewables.

However, China Life’s move towards government bonds is less common, a Hong Kong-based senior executive at an insurer told AsianInvestor.

“It’s a tactical move - I wouldn’t say that’s common across the insurance industry,” they said.

The move was made to narrow the duration gap based on their rate view and harvest some profits from equities, another investment manager at an insurer said. “A-shares had a good time back in Q4 2020 and early Q1 2021,” they quipped.

In their report, China Life also highlighted that the growth of the life insurance industry had further slowed in terms of premiums because of the pandemic, shrinking demand, supply disruption and a “complicated” international environment.

Net profit attributable to equity holders was Rmb50.9 billion, a 1.3% rise from the year before, but a drop from 2019’s Rmb58.3 billion.

The insurer also indicated that increasing regulations will continue to have an impact on the insurance sector in areas such as product management, market behaviour and corporate governance.

In January, China’s top anti-corruption agency said it was investigating China Life’s chair, Wang Bin.