Ping An Insurance Group, the second-biggest insurer by premium, says it is gradually moving into property and corporate bonds to reduce its dependence on equity returns amid the raging volatility in capital markets.
The lacklustre performance of the mainland stock market and write-offs in loss-making securities have forced it to look for more reliable sources of cash flow.
"We plan to lower the weighting of equities in our overall portfolio and focus on investing in stocks with low valuations," Timothy Chan, Ping An's chief investment officer, said in a post-results briefing.
"Alternative investments such as commercial property in first- and second-tier cities and corporate bonds could offset the negative equity contributions."
Chan said the weighting of property investment in Ping An's portfolio could be raised up to 10 per cent from the current 1.5 per cent.
The group's total investment yield dropped to 2.9 per cent last year, compared with 4 per cent for the previous accounting period, while total investment income dropped by 13 per cent to 25.7 billion yuan last year.
Jason Yao, senior vice-president of Ping An, forecast the domestic A-share market could turn volatile and said he expected returns would therefore be lowered by 20 to 25 basis points.
Darwin Lam, an insurance analyst at Citi, pointed out that a sharp market correction on the mainland was among the risks facing Ping An.
Asked about the asset quality of its banking unit, Shao Ping, president of Ping An Bank, said: "A deterioration was due to difficult operating conditions for small and medium-sized enterprises in Wenzhou, Ningbo, Hanzhou, and Shanghai."
He said the overall condition remained stable and sound.
Net interest margin, which measures the spread between funding costs and lending income, continued to narrow to 2.37 per cent last year from 2.56 per cent the year before. Non-performing loan ratio, or the ratio of bad loans to overall outstanding loans, increased to 0.95 per cent from 0.53 per cent over the same period, underlining the mounting default risk.
Ping An chairman and chief executive Peter Ma said the insurance industry would continue to slow down while the pace at which the banking industry transforms itself would pick up.
The financial conglomerate said it aims to use technology such as mobile telephony and data analysis to drive its growth in the next phase of development.