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SHENZHEN: Ping An Insurance reported a 23 percent growth in its first-quarter earnings yesterday, as robust premium growth and banking business helped offset a steep drop in its investment gains.
China's second-largest life insurer did better than its larger rival, China Life, which posted a worse-than-expected 61 percent drop in its bottom line on Sunday.
But analysts still question the profitability of Chinese insurers amid weak stock markets this year, saying their poor performance may prompt the central government to speed up deregulations to allow them to invest in more sectors such as property.
Ping An, partly-owned by HSBC, earned 7.2 billion yuan in net profits from January to March, compared with 5.9 billion yuan a year earlier.
As an active stock trader, the Shenzhen-based firm saw its investment income dive 35 percent year-on-year to 8 billion yuan.
But its efforts to recruit more agents paid off, helping boost its gross written premiums, policy fees and premium deposits to 35.8 billion yuan, up 35.1 percent from a year earlier.
"The result isn't bad compared with China Life," said Wang Lei, an analyst with Guotai Junan Securities. "One conclusion can be drawn: Ping An is challenging China Life's leadership in both the insurance sector and pace of diversifying businesses".
But a weaker investment gain is expected to mar Ping An's performance in the months ahead.
China International Capital Corporation predicted last month that Ping An may post a 41 percent year-on-year dip in net profits in 2008.
Mainland insurers reaped investment gains of 31.13 billion yuan in the first quarter, with an average yield of 1.2 percent, the China Insurance Regulatory Commission said last week. The yield is compared with more than 10 percent last year, after the mainland stock market nearly halved in the first quarter.
The central government is now mulling whether to allow insurers to invest in the property market, a sector it has tried to cool down for years.
"It shows that the central government has recognized the situation of the insurance sector and is now willing to allow it to get into some sectors that used to be tightly controlled," Wang said.
Refinance deal
For Ping An, uncertainty over its colossal fund-raising activity will likely hurt its share performance.
The firm announced plans this year to sell 160 billion yuan worth of bonds and new shares in the A-share market, although the deal was later cut to 120 billion yuan.
The plan triggered investors to offload their holdings, resulting in a partial crash in the A-share market.
The refinancing plan, China's largest, was passed by its shareholders in early March, but it has yet to be carried out. Media reports earlier this month said that Ping An is considering issuing new shares in Hong Kong, too. But Ping An has denied the rumors.
"Should Ping An go ahead with an H-share placement, we believe it would further dampen sentiment on the shares," Merrill Lynch said in a research note dated March 25. The investment bank has given a "neutral" rating to Ping An's H-shares.
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