PICC Property and Casualty, China's biggest non-life insurer, disappointed the market with an 86 percent fall in its 2004 earnings on the back of higher-than-expected losses from claims and trading activities.

The result sent the stock price into a dive, cutting 7.8 percent Monday despite a vow by management to boost its returns by opting for more government bonds and speeding up its penetration into the mainland's life insurance market.

The Beijing-based company yesterday blamed the rise in claims on increased risk exposure in the commercial property and accidental injury insurance segments, and poor investment returns on domestic equity markets.

Driven by stiff competition in the insurance market, the company booked its net claims at 38.91 billion yuan (US$4.69 billion) last year, a 34 percent rise from 29.06 billion (US$3.5 billion) in 2003.

Earnings in 2004 totalled 208 million yuan (US$25.1 million), compared to 1.45 billion yuan (US$175 million) a year ago.

The discouraging result lagged the average forecast of 1.58 billion yuan (US$190 million) derived from a poll by Reuters and prompted Morgan Stanley to downgrade the stock to "underweight" from "equal weight."

Shares of PICC, which have fallen by 11 percent over the last month, closed at HK$2.05 yesterday. Investors are spooked by the lackluster earnings result and the general volatility of the mainland stock market.

PICC has a current net loss of 948 million yuan (US$114 million) on trading and non-trading securities against a net gain of 260 million yuan (US$31.3 million) in 2003, and has pledged to decrease its exposure to equity markets to below 10 percent from 10.9 percent in 2004.

"We are confident that we can make better returns this year by investing in medium-term bonds and lowering our exposure to the equity market," vice-chairman and CEO Wang Yi told a media briefing yesterday.

Riding on the back of robust growth in China's insurance industry, the company made an overall loss but still saw a 25.3 percent surge in its net premiums to 50.63 billion yuan (US$6.1 billion), contributing to a jump in turnover of 13 percent to 62 billion yuan (US$7.47 billion) last year.

The company said its motor vehicle insurance segment, the largest in the country, was the only positive contributor to turnover last year, and saw a 21.5 percent rise in sales to 42.9 billion yuan (US$5.17 billion).

PICC plans to expand its foothold from the property and casualty sectors to the fast-growing life insurance market on the mainland this year.

(China Daily April 26, 2005)