Posted on Oct 18, 2011 by Sergio Ulloa
The Ping An Insurance (Group) Company, China's second largest insurer by market value, have announced a 33 percent year-on-year increase in original premium revenue from January to September this week, at the top end of market expectations. As the company's premium income and investment returns have continued to grow, the insurer has also worked to obtain approval for a substantial investment war chest to pursue overseas activity.
In a statement released on October 14 to the Hong Kong stock exchange, Ping An reported that the accumulated gross premium income from the group's four insurance subsidiaries for the first three quarters of 2011 had climbed to CNY159.67 billion (US$25.06 billion) from roughly CNY108.57 billion (US$17.04 billion) a year earlier, despite prolonged global market turmoil, a slowdown in automobile sales in China and tightened regulation over bancassurance policies.
The Shenzhen-based financial services conglomerate reported in more detail that premium income accounted for by the group's life insurance subsidiary (Ping An Life Insurance) had risen in the first nine months of the year to CNY 93.95 billion (US$14.75 billion), due in part to improved agency size and productivity. In addition to this, Ping An Property and Casualty Insurance was able to leverage its specialist sales channels to help record CNY61.59 billion (US$9.67 billion) in premium income. The group's health and annuity insurance subsidiaries (Ping An Health Insurance, Ping An Annuity) meanwhile were also able to demonstrate progress from January 1, 2011 to September 30, 2011, reporting CNY88.32 million (US$13.8 million), and CNY4.05 billion (US$640 million), in premium income for the period respectively. All four subsidiaries reported higher gross premium incomes for the first three quarters than for the corresponding period in 2010, which were CNY71.2 billion (US$11.18 billion) in life premiums, CNY45.46 billion (US$7.14 billion) in p&c, CNY47.89 million (US$7.52 million) in health, and CNY3.33 billion (US$520 million) in annuities. Ping An noted to investors however that the abovementioned information has not yet been audited.
Ping An's monthly premium data, which has continued to outpace its peers in both life and general insurance sectors
, helped lift the stock by 6.1 percent to HK$56.55 on the Heng Seng index this week. However it has been the performance of the firm's banking sector that presents the most promise going forward. Ping An noted in a pre-announcement this week that the nine-month net profit from its majority-owned banking unit, Shenzhen Development Bank Co (SDB), rose by as much as 70 percent from the corresponding period last year. This strong performance was attributed to SDB's steady growth in the scale of assets, improvement in interest spread and implementing more effective cost controls. In an attempt to capitalize on its success in the financial services sector and establish itself as a major player in the Asia Pacific region, Ping An Insurance increased its holding in SDB to 52.4 percent in 2010, using CNY2.69 billion (US$420 million) in available cash and their 90.75 stake in Ping An Bank to fund the deal. At the end of July 2011, SDB completed the takeover of Ping An Bank's stakes and have now embarked on a gradual consolidation process that will lead to a singular banking entity with significant market share throughout China.
Ping An interim report noted that net profit from its banking businesses had more than doubled to CNY2.4 billion (US$375 million) in the first half of 2011, accounting for nearly a fifth of the group's total net profit of CNY12.76 billion (US$1.9 billion). Insurance companies in China are duly investing in bank stocks because they believe bargains have begun to surface on expectations that the market has bottomed out following the sharp falls due to the global market turmoil earlier this summer. Many Chinese banks in turn are looking to bolster their capital positions in the face of volatile global financial markets, and welcome both the capital and client base that prominent insurance companies can bring with them.
Ping An involvement with Shenzhen Development Bank comes as part of the company's ambitious long term plan to become a full-service financial services conglomerate, with equal proficiency in cross-selling insurance, banking and investment operations worldwide. Ping An have used Citigroup and HSBC as models (HSBC in fact hold a 16 percent stake in the Chinese insurer). The insurer is also looking to diversify its product lines through its trust. Just this week, Ping An Trust & Investment Co received a US$300 million Qualified Domestic Institutional Investor (QDII) stipend from China's foreign-exchange regulator to pursue overseas investment opportunities. QDII products were introduced by the Chinese government in 2006 to give local financial institutions, including domestic banks, fund managers and insurance companies, permission to invest in foreign securities while staying within predetermined quotas. According to year-end 2010 accounts, China's forex regulator has now issued US$68.36 billion worth of QDII quotas.
According to Ping An's half year report
, company business from non insurance operations (such as banking, securities and trusts) now account for over 27 percent of its net profits, up from 23 percent in 2010, and management are keen to see this trend continue. Using their newfound assets in QDII and Shenzhen Development Bank, Ping An will further accelerate the development of banking and investment business within the group's business portfolio. Insurance industry analysts predict that these moves could lead Ping An to perform better than its biggest rival China Life in the longer term. Having a more diversified business portfolio will ultimately help protect the Chinese insurance giant from adverse global market volatility in the future.
Insurance Companies Mentioned
Ping An Insurance (Group) Co. of China Ltd.
Ping An Insurance is the first integrated financial services conglomerate in China that blends its core insurance operations into services including securities brokerage, trust and investment, commercial banking, asset management and corporate pension business to create a highly efficient and diversified business profile. The group was established in 1988 and headquartered in Shenzhen, Guangdong Province, China.