Ping An Profit Jumps 40% in 2014 on Strong Investment Returns

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Ping An Insurance (Group) Co., China’s second-biggest insurer, rose to the highest in more than four years in Hong Kong stock trading on Thursday after it said profit jumped 40 percent last year.

The shares advanced 4.6 percent to HK$92.60 as of 11 a.m. local time, the highest since December 2010. Profit rose in the year ended Dec. 31 as stock-market rallies bolstered Ping An’s investment returns.

“This result reinforces our belief that Ping An is the premier insurance franchise in China,” Arjan van Veen and Frances Feng, Credit Suisse Group AG analysts in Hong Kong, wrote in a report Friday. They cited the company’s little reliance on bancassurance and its life agency force among strengths, though warned that its banking unit “will face asset quality issues for some time.”

Net income climbed to 39.3 billion yuan ($6.35 billion), or 4.68 yuan a share, from 28.2 billion yuan, or 3.55 yuan a share, a year earlier, the company said in a statement to the Hong Kong stock exchange on Thursday. The profit compares with the 40.8 billion yuan average estimate by seven analysts surveyed by Bloomberg.

A 53 percent jump in the benchmark Shanghai Composite Index last year lifted the value of insurers’ equity holdings, as the Chinese government expanded liquidity to stem an economic slowdown. Ping An, with an overseas portfolio that already includes office buildings in London, also joins Chinese conglomerates buying international real estate that promises a long-term boost to investment returns.

Investment Income

“It’s in the interest of the insurance company to expand overseas” as its portfolio is still very concentrated in the domestic stock market, Edmond Law, a Hong Kong-based analyst with UOB-Kay Hian Holdings Ltd., said by phone before the earnings. While property remains small in Ping An’s investments, it will grow faster and make “a more meaningful contribution” to profit going forward, Law said.

Investment income rose 29 percent, the Shenzhen-based insurer said. Impairment losses from investments rose to 9.29 billion yuan from 1.62 billion yuan in 2013, according to the statement. Realized gains rose 329 percent. Investment properties fell 0.2 percent to 20.3 billion yuan as of Dec. 31, accounting for 1.4 percent of its portfolio.

Berlin Property

Ping An is vying with Fosun International Ltd., backed by Chinese billionaire Guo Guangchang, to acquire 18 buildings on Berlin’s Potsdamer Platz square, people with knowledge of the matter said. In January, the insurer bought Tower Place, an office property in the City of London financial district, for 419 million euros ($451 million).

Chinese insurers have been purchasing overseas properties to diversify away from equities after regulators two years ago granted them more freedom in how they allocate their cash. Anbang Insurance Group Co., a closely held Beijing-based insurer that bought New York’s Waldorf Astoria hotel, agreed to pay between $400 million and $500 million for an office building on Manhattan’s Fifth Avenue, according to people familiar with the transaction.

Ping An will expand the share of overseas investments, so far totaling more than 30 billion yuan, in its portfolio in the next three to five years to diversify risks and as expectations for further yuan gains abate, Chief Investment Officer Timothy Chan said at a briefing in Shanghai in August.

‘Strong’ Earnings

A 30 percent profit jump at Ping An Bank Co. also contributed to the earnings growth as the banking unit’s interest margins widened.

Hong Kong-listed Chinese insurers are expected to post “strong” earnings growth for 2014, with anaverage 86 percent jump in net income from a year earlier due to gains in the stock market, Bocom International Holdings Co.’s Hong Kong-based analyst Li Wenbing wrote in a March 9 report.

Bigger rival China Life Insurance Co., scheduled to report earnings March 24, said in January that its profit last year may rise about 30 percent from the previous year, citing bigger investment returns.

Chinese insurers’ investment returns surged 46.5 percent last year to 535.9 billion yuan, with the yield rising 1.3 percentage points to 6.3 percent, the China Insurance Regulatory Commission said in a Jan. 26 statement on its website.

Ping An’s net premiums earned rose 20 percent, according to the statement. New business value, which gauges the profitability of new life policies sold, rose 21 percent, the company said. Underwriting profitability of non-life insurance improved, with the combined ratio, which measures claims and expenses as a percentage of premium income, dropping by two percentage points to 95 percent from the previous year.

In a separate statement Thursday, Ping An said it will pay a cash dividend of 0.5 yuan per share and issue 9.14 billion bonus shares on a 10-for-10 basis.

–With assistance from Haixing Jin in Beijing.