Stock leaps after insurance giant justifies 7.2 fen payout as show of confidence in future operations PICC Property and Casualty has declared a generous first dividend since its October 2003 listing but predicts a challenging second half. An interim dividend of 7.2 fen was recommended against basic earnings per share of eight fen, which represented a 7 per cent fall from a year earlier. Having previously felt only the bottom-line impact of an increasingly competitive industry and an adverse investment environment, PICC's shares rose 9.13 per cent to $2.15 yesterday after the results announcement. Admitting the payout was generous compared with the company's share price, chief financial officer Wang Yincheng yesterday said: 'We want to show the market that the company had a good first half and strong confidence in future operations. There is no fundamental change to our dividend policy.' He said future payouts would continue to be based on profitability, capital position and gearing. Mr Wang denied there was any link between the high dividend payout ratio and its state-owned parent's need to finance a capital contribution towards a new life insurance venture. PICC, which commands a 53 per cent share of the mainland property and casualty insurance market and is 9.9 per cent owned by United States giant American International Group, reported a 7.7 per cent year-on-year fall in interim net profit to 889 million yuan. Turnover fell 1.4 per cent to 34.88 billion yuan, with a 5 per cent drop in revenue from the core motor vehicle segment, which contributed 65.5 per cent of total turnover. Weaker results compared with its life insurance peers had been expected by analysts because of greater competition in the non-life insurance sector and the challenging investment environment. PICC's net investment income rose 28.1 per cent to 679 million yuan in the first six months, helped by increasing interest income from bank deposits, debt securities and loans. However, this was offset by meagre dividend payouts from its mutual fund holdings and a 38 per cent rise in net realised and unrealised losses on its investment portfolio to 711 million yuan. The latter was the result of a 140 million yuan increase in impairment loss provisions for debt securities deposited at the now bankrupt Han Tang Securities and continuing weakness in the mainland stock market. PICC had deposited one billion yuan worth of bonds in the custody of troubled Chinese brokers Han Tang and Galaxy Securities. The amount and timing of their recovery remain uncertain. Meanwhile, PICC plans to control exposure to the mainland equities market through mutual funds to less than 10 per cent of the company's investment portfolio in the second half. The percentage had already fallen to 8.1 per cent in the first half. The 2.1 per cent appreciation of the yuan against the US dollar last month was expected to depreciate the company's foreign currency assets by about 200 million yuan with the impact to be felt in the profit and loss account in the second half, Mr Wang said. Although revenue may grow as a result, the expected introduction of mandatory third-party liability motor insurance regulation in the second half could also bring fresh challenges. Chief executive Wang Yi said PICC expected to see a sharp increase in claim frequency and prepayments to accident victims under the new rule.