China's largest non-life insurer PICC Property and Casualty (PICC P&C) Co Ltd yesterday said its interim net profit dropped 27 per cent due to higher loss ratios and weak investment income.

The Hong Kong-listed PICC P&C made a net profit of 963 million yuan (US$116 million) in the first half year, compared with 1.32 billion yuan (US$156 million) a year ago.

The result was significantly short of market estimation at 1.3 billion yuan (US$156 million).

PICC P&C's turnover in the first half rose 15.5 per cent to 35.4 billion yuan (US$4.3 billion) amid a 23 per cent rise in general insurance premiums in China in the first six months of the year.

In addition, the company's interest and dividend income jumped 72.4 per cent to 519 million yuan (US$62.75 million), but net losses on trading and non-trading stocks amounted to 514 million yuan (US$61.9 million) against a net gain of 230 million yuan (US$27.7 million) a year earlier as a result of subdued domestic securities markets.

The company's chief executive officer Wang Yi said the company's loss ratio has risen from 71.5 per cent for the first half of last year to 72.7 per cent for the first half of this year, mainly due to an increase in loss ratio of motor insurance from 82.2 per cent to 86.1 per cent.

Wang added that his company would introduce a series of measures in the future such as lifting premium rates for motor vehicle policies to reduce the loss ratio.

At the same time, the company will strive to reduce the weighting of motor insurance from 68.4 per cent to 65 per cent because of its prohibitive high loss ratio, said Wang.

"PICC P&C will launch all possible measures to improve the motor insurance business since it is a critically important segment of our company," he said.

Wang also noted that net claims incurred for motor insurance had increased by 3.9 percentage points to 86.1 per cent.

A number of factors combined have caused it, including the continuing effect of de-regulation in the terms and premium rates of motor insurance, changes in laws governing road traffic control and compensation for personal injury, the increasing number of private motor vehicles and the increasing number of new drivers and accidents.

The company has introduced several measures and adjusted the premium rates for the segment, and it is believed that with the new measures in place the company's loss ratio will gradually decrease, he said.

Moreover, Hong Kong Sun Hung Kai Research's analyst Chen Mo said that at present PICC P&C should focus on diversifying its business since it is facing a fierce competitive property and casualty insurance market.

"In the second half, the company should pay more attention to its general profit increase but not only premium increases," Chen said.

Asked whether PICC P&C has considered investing in the overseas bond market with the company's foreign exchange insurance funds, the company's executive vice-president and chief financial officer Wang Yincheng said the management of the company is still studying related technical work.

The works are expected to be completed at the end of this year.

He said no decision has yet been made regarding the actual amount of investment and whether to set up a fund management company in Hong Kong.

Analyst Chen said investing in US Treasury bonds might be PICC P&C or even other insurance companies' preference.

The company would increase the size of its investments in government, financial and corporate bonds in the second half of this year, Wang Yincheng said.

Reflecting the public's disappointment over the interim net profit decline, shares of PICC P&C dropped 6.48 per cent to end at HK$2.525 yesterday after the media briefing.

No interim dividend was declared.

(China Daily August 24, 2004)