Staggering underwriting losses and an expected slowdown in investment gains dragged down the share price of PICC Property and Casualty Co yesterday.

The mainland's largest non-life insurance provider, an arm of the insurance giant PICC, saw its shares tumble 11.39 percent, or HK$0.87, to close at HK$6.77.

PICC Property and Casualty's exposure to stocks now accounts for a significantly smaller portion of its investment portfolio following a reduction by the company last month. China Daily

Last year, on the back of stellar investment gains and robust growth in automobile insurance, the insurer recorded a net profit increase of 43.7 percent to bring in 3 billion yuan.

But stock-market earnings are expected to fall this year and put pressure on the firm's profitability.

And US subprime woes and volatility in the mainland stock market are expected to add to PICC's difficulties.

The firm said yesterday that it cut its exposure to stocks last month by about 12 to 13 percent in anticipation of a weak market.

Its stake in stocks was nearly 21 percent at the end of 2007.

"The investment outlook this year will not be as good as last year," the company's executive director, Wang Yincheng, said after the market closed.

The firm's underwriting losses for the insurer skyrocketed more than 300 percent in the fiscal year ending on Dec 31.

Last year, the property insurer recorded underwriting losses of 1.4 billion yuan, compared with a 604 million yuan profit in 2006.

Wang attributed the loss to downward-premium trends squeezing profit margins and also some one-off investments in the property insurer to boost sales.

"Since net-earned premiums grew, administrative expenses also saw some natural growth," Wang said.

General and administrative expenses in 2007 alone cost 11 billion yuan - a 63 percent increase.

Wang said that part of the additional expense went into providing competitive compensation packages for its employees, especially for key talents.

The hot equities market in 2007 pared off some of the company's losses.

Net investment income swelled 91 percent to 3.2 billion yuan.

Core business for the firm in 2007 saw good growth.

It booked a net premium of 68 billion yuan, climbing 23 percent, while turnover also jumped 24 percent to bring in 88 billion.

Auto insurance

Automobile insurance continued to be the biggest contributor with a turnover of 61 billion yuan, representing 69 percent of the firm's total turnover.

However, so far this year, rates for mandatory automobile insurance on the mainland have been reduced for 16 out of the 42 classes of vehicles.

PICC Group President Wu Yan said that although the company recorded a 14.2 increase in the number of mandatory auto-insurance policies in the first quarter, premium growth was just 5.1 percent.

"The impact of the reduced rate can be seen clearly," Wang said, noting that the full impact is unclear as the reduction was made just a few months ago.

(HK Edition 04/17/2008 page2)