Disasters leave PICC with deficit of 292m yuan
PICC Property and Casualty, the country's largest non-life insurer, recorded its second successive half-year loss because of large claims related to the two catastrophes on the mainland this year, but promised to impose 'strict controls' on costs.
PICC posted a net loss of 292 million yuan (HK$332.18 million), against a profit of 3.2 billion yuan in the same period last year. It recorded a loss of 190 million yuan in the preceding half.
'We will impose strict controls on claims management, control costs and expenses ... and mitigate the adverse effects of catastrophes on the operation of the company,' it said in a statement posted on the Hong Kong stock exchange website.
The company's optimism is not shared by analysts, who unanimously expect the insurer to face strong headwinds as a result of poor capital market performance and an unfavourable operating environment.
'While a series of unfortunate natural disasters in China this year is likely to stimulate demand for insurance products, particularly in the property and casualty sectors, we maintain a cautious view on PICC due to its uncertain margin outlook,' said Nomura analyst Ben Lin, who has a 'reduce' rating on the stock.
PICC shares closed 5.71 per cent lower at HK$3.80 before the announcement was made. The stock has lost 65.95 per cent of its value this year, compared with larger rivals Ping An Insurance (Group), which has declined 41.7 per cent, and China Life Insurance, down 34.2 per cent.
Earnings were dragged down by claims from the winter blizzards and earthquake in May totalling 30.48 billion yuan, and a 35.84 per cent fall in investment income.
PICC cut its equity exposure to 5.52 per cent of its investment portfolio from 12.64 per cent in December, while investment in fixed-income assets increased to 58.55 per cent from 54.48 per cent.
With the mainland stock market down by 48 per cent in the first half, PICC said investment income fell 35.85 per cent to 2.87 billion yuan. This includes a 2.16 billion yuan loss in its A-share holdings.
The firm posted an underwriting loss of 2.08 billion yuan, compared with a 1.22 billion yuan profit a year earlier. Administrative expenses rose 27.5 per cent to 5.58 billion yuan, outpacing premium growth of 21.53 per cent. The company's solvency margin, a measure of its financial health, was 120.3 per cent at the end of June.
Analysts expect PICC to raise more capital after a new rule requiring major insurers to maintain a solvency ratio of at least 150 per cent takes effect on September 1.
