CIRC Has Restrictions on PICC P&C to Make Realty Investment

Realty investment of PICC Property and Casualty Company Limited (PICC P&C, 2328.HK) might be restricted this year as the current solvency adequacy ratio of the non-life insurer is lowered than 150% regulatory requirement.

Pursuant to the interim measures of China Insurance Regulatory Commission (CIRC) on the realty investment with insurance capital, an insurance institution qualified to make the realty investment shall have a solvency adequacy ratio of not less than 150% at the end of the previous fiscal year and the end of the previous quarter, as well. As for PICC P&C, the property insurer had the solvency adequacy ratio of 111% by the yearend of 2009 and 117% by the end of this June. Still, PICC P&C is understood to be able to raise the solvency adequacy ratio in a short term via the additional share sale or bond issuance, market analysts said.

Although PICC P&C seems not to be active enough in the realty investment compared to other domestic insurance giants, the Beijing-based company has PICC Investment Holding Company Limited as the trump card, which in 2008 controlled China Huawen Investment Holding Co., the parent of Shanghai-listed Shanghai New Huang Pu Real Estate Co. (600638.SH).

In the first half of 2010, Hong Kong-listed PICC P&C suffered shrinking market share from 40% to 39% in domestic non-life insurance sector. The non-life insurer during the first six months of this year achieved the operating revenues of CNY 81.63 billion, an increase of 21.7% year on year. In the meantime, the company earned the net profits of CNY 2.645 billion, up CNY 2.565 billion compared to the same period of 2009, with the earnings per share of CNY 0.24.

With incomes of CNY 58.85 billion, the motor vehicle insurance made the major contribution to the growth in its operating turnover, compared to CNY 46.33 billion such incomes during the first half of 2009 and accounting for 72% of PICC P&C's total operating revenues in the period. First half's underwriting profits reached CNY 1.9 billion, versus the losses of CNY 1.5 billion in the first six months of the previous year. By the end of the reporting period, the claim compensation rate stood at 66.1%, while the figure was 67.8% in the first half year of 2009.

As a result of the gloomy capital market, the company from this January to June realized the investment yields of only CNY 28 million, a sharp decrease compared to CNY 454 million investment yields in the first six months of the previous year.