PICC shares lowest in a month

PICC Property & Casualty Co, China's largest non-life insurer, fell the most in a month in Hong Kong trading after posting a second-half loss on higher expenses.

The shares lost 11.39 percent to HK$6.77 yesterday. The Beijing-based insurer posted a second-half loss of 197 million yuan, compared with a profit of 750 million yuan a year earlier.

PICC, partly owned by American International Group Inc, must contend with higher costs in a competitive market just as the mainland's stock market slump eats into the firm's investment returns, said Mark Kellock, a Deutsche Bank AG analyst in Hong Kong, who rates the stock a "sell".

"PICC's expenses went through the roof in a very competitive environment, and this won't even be countered by soaring investment gains this year. There's bad news all around," Kellock said.

PICC's 2007 net income grew to 2.99 billion yuan, or 0.268 yuan a share, from 2.1 billion yuan, or 0.187 yuan a share, bolstered by stock investment gains, the firm announced on late Tuesday. Its employee expenses surged 32.1 percent to 6.8 billion yuan last year from a year earlier.

PICC is also wrestling with slower-than-average growth in insurance sales. Premiums climbed 24.3 percent last year, lagging a 32 percent average in the mainland's property and casualty insurance market, according to data from the industry regulator.

Citigroup cut its 12-month target price for PICC to HK$6.93 from HK$8.88, and Goldman Sachs trimmed it to HK$6 from HK$6.3.

Credit Suisse Group reduced its 12-month forecast for the company's share price to HK$6 from HK$8. PICC has dropped 60 percent from a record high of HK$17.08 in October.

"With the falling A-share market hurting investment income, and rising interest rates hurting borrowing costs, PICC could see further deterioration in earnings prospects" in 2008, Bob Leung, a Hong Kong-based Citigroup analyst who has a "sell" rating on the stock, wrote in a report yesterday.

Net earned premiums, which excludes money paid to reinsurers, grew 23.6 percent in 2007 to 68.7 billion yuan. Revenue rose 24.3 percent to 88.7 billion yuan.

PICC posted an underwriting loss of 1.4 billion yuan last year, compared with a profit of 604 million yuan in 2006.

Claims related to this year's snowstorms in China may also drag down PICC's performance in 2008. Citigroup cut its 2008 earnings estimate by 74.6 percent after the company's first underwriting loss since going public in November 2003, Leung wrote in the report.

PICC has paid out 2.1 billion yuan in snowstorm claims as of April 9, some of which will eventually be borne by reinsurers, according to the firm.

Agencies

(China Daily 04/17/2008 page15)