China Life Insurance's Q1-Q3 Performance and Implications for Long-Term Shareholder Value

China Life Insurance (2628.HK) has navigated a challenging macroeconomic environment in 2025 with a mix of resilience and strategic recalibration. The company's Q1-Q3 2025 performance, marked by a 6.9% year-on-year increase in half-year net profit to RMB40.93 billion, according to the earnings call, underscores its ability to adapt to shifting market dynamics. However, the decline in operating margins and evolving capital allocation strategies raise critical questions about its long-term value proposition for shareholders.

Profitability Resilience: A Mixed Picture

China Life's Q1 2025 net profit surged 40% year-on-year to RMB28.8 billion, driven by robust investment returns and sustained demand for savings products, according to an Insurance Business report. This momentum carried into the first half of 2025, with total premium income reaching RMB525.088 billion-a 7.3% year-on-year increase. Yet, the trailing twelve months (TTM) operating margin as of October 2025 stands at 8.77%, a sharp drop from 38.03% at the end of 2024, according to operating margin data. This contraction reflects broader industry headwinds, including the lingering effects of IFRS 17 adoption, which has shifted some profits into other comprehensive income (OCI) and reduced reported margins.

The company's investment strategy has partially offset these pressures. A 5.5% total investment yield in 2024, according to a China Daily report, bolstered by increased equity allocations, highlights its focus on capital preservation and returns. However, the operating margin's decline suggests that China Life's cost structure or asset yields may not yet align with its ambitious growth targets.

Capital Allocation Efficiency: Balancing Dividends and Growth

China Life's capital allocation strategy in 2025 has prioritized both shareholder returns and long-term reinvestment. The company declared an interim dividend of HK$0.482 per share for the first half of 2025, with a payout ratio of 18%, according to dividend data. While this ratio indicates disciplined distribution, historical data reveals a mixed picture: the 1-year dividend growth rate is 17.91%, but the 3-year and 5-year averages are negative (-21.41% and -19.56%, respectively). Analysts caution that the company's Dividend Sustainability Score of 27.41% and limited Dividend Growth Potential Score of 14.05% suggest caution for investors seeking stable income.

Simultaneously, China Life has ramped up equity investments, allocating over RMB100 billion to stocks and public mutual funds in 2024 alone. The company plans to further increase exposure to equities in 2025, aligning with government directives that require state-owned insurers to allocate 30% of new premiums to this asset class, as noted in the earnings call. This shift, while potentially boosting returns, also exposes the company to equity market volatility-a risk that could amplify swings in profitability.

Implications for Long-Term Shareholder Value

China Life's Q1-Q3 2025 performance illustrates a delicate balancing act. On one hand, its strategic pivot toward high-dividend equities and conservative payout ratios positions it to capitalize on China's high-quality growth trajectory. On the other, the declining operating margin and mixed dividend history signal vulnerabilities in sustaining long-term value.

For investors, the key lies in assessing whether the company's capital allocation choices-particularly its equity investments-can generate returns sufficient to offset margin compression. The government-mandated shift toward equities may provide a tailwind, but it also introduces systemic risks. Meanwhile, the 4.45% dividend yield, while attractive relative to the bottom 25% of Hong Kong dividend payers, lags behind top Financial Services sector peers, limiting its appeal for income-focused investors.

In conclusion, China Life Insurance's 2025 performance reflects a company in transition. Its ability to maintain profitability resilience while optimizing capital allocation will determine whether it can deliver consistent long-term value in an increasingly uncertain market.