China Life Insurance Co, the nation's biggest life insurer, said it plans to set up a pension insurance company with its parent and investors as the country encourages voluntary contributions for retirement.

"As the reform of social security continues, we need both basic and supplementary pensions in the system," Lin Dairen, a vice-president of the Beijing-based firm, said in Hong Kong yesterday.

China Life is in the process of getting approval from regulators to form a pension company with its parent before it applies for a trustee licence, Lin said.

The licence will allow the new company to choose a fund manager to handle its customers' pension funds.

China is rolling back its cradle-to-grave welfare benefits and gradually shifting the responsibility for protection to its 1.3 billion citizens. The country started giving out corporate pension licences to companies, including commercial insurers and fund managers, earlier this month because existing contributions aren't enough to meet retirement demand.

The insurer is in talks to bring in companies outside the group as shareholders of the new unit, said Li Liangwen, another vice-president. The investment size will be "a few hundred million yuan," he said.

China Life, controlled by parent China Life Insurance (Group) Co, reported on Monday that first-half profit grew 86 percent to 5.2 billion yuan (US$642 million) after it made more gains from bond investments and sold more profitable long-term policies.

The insurer's rating was cut to "hold" from "buy" at Deutsche Bank AG yesterday on concern the stock's gain in the past four months more than reflected earnings prospects.

Merrill Lynch & Co, which keeps a "buy" rating, upgraded its 2005 earnings estimate for China Life by 12.2 percent because of higher margins and longer duration policies.

The insurer will continue to focus on long-term policies that bring in regular premiums instead on single-premium products, Lin said. "Our target growth for premiums is at least 20 percent," he said.

(China Daily August 31, 2005)