HONG KONG: PICC Property & Casualty Co, the nation's largest non-life insurer, fell in Hong Kong trading after first-half profit missed analysts' estimates as a result of rising claims and falling investment gains.

The stock closed 1.3 percent lower after shedding nearly 4 percent in early trading yesterday. The insurer on August 21 posted profit of 322 million yuan ($47 million) for the first six months. That fell 26 percent short of a 1.24 billion yuan median estimate by three analysts surveyed by Bloomberg News.

PICC's realized and unrealized investment gains fell 32 percent, even as the Shanghai Composite Index surged 63 percent in the first half. The company's underwriting loss from motor vehicle insurance, the biggest portion of the mainland's non-life insurance market, more than tripled after the government lowered premium rates and raised the compensation ceiling on some packages.

"The result was much worse than we thought; people were expecting at least 1 billion yuan" in profit, said Nan Sheng, a Shanghai-based analyst at UOB Kayhian Investment Co said, adding that, "Claims from motor vehicle insurance were much higher, and the company was a bit conservative with stocks."

Sheng said he cut PICC's price target to HK$3.90 from HK$4.50. Olive Xia, a Shanghai-based analyst at Core Pacific Yamaichi, said in an e-mailed note yesterday that she's lowered the Beijing-based insurer's rating to "sell" from "hold."

PICC's net investment income, mainly dividends and bond yields, fell to 1.37 billion yuan from 2.19 billion yuan, the company said. Realized and unrealized investment gains, largely reflecting stock market price changes, fell to 454 million yuan.

The company cut equities to 6.6 percent of its total portfolio as of June 30, from 7.9 percent at the end of last year, as a result of a "conservative" investment approach, President Wang Yincheng told reporters in Hong Kong yesterday. Bigger rival Ping An Insurance Group Co boosted stock investments by 1.8 percentage points to 9.6 percent in the period.

"We may have missed some opportunities," Wang said. "But after the nearly 20 percent decline in the A-share market, investment opportunities are emerging again."

The benchmark Shanghai index on August 19 briefly was down 20 percent below this year's high, the threshold for a bear market, before rebounding 6.3 percent the last two days of the week. PICC caps equity investments at 12 percent of its portfolio, Wang said.

PICC can't guarantee a full-year underwriting profit, although the motor vehicle insurance market is improving, Wang said yesterday. The company's underwriting loss narrowed 42 percent to 1.21 billion yuan in the first half, as claims fell due to a lack of major disasters.

Lower premium rates and higher claims from compulsory motor vehicle third-party liability insurance helped push up total payouts, UOB Kayhian's Sheng said. The underwriting loss from motor vehicle insurance more than tripled to 1.98 billion yuan in the first half, the company said.

The compensation ceiling for injuries covered by compulsory contracts doubled on Febuary 1, 2008, as the government tried to better protect drivers, lifting average payouts 19 percent last year, PICC said in a June 29 report.

China Daily - Bloomberg News

(HK Edition 08/25/2009 page4)