From The Wall Street Journal
SHANGHAI (Dow Jones)--China Pacific Insurance (Group) Co. (601601.SH) said Friday its 2008 net profit tumbled 81% because of the slump in the domestic stock market and increased insurance payouts to cover natural disasters in China last year.
The company joins its local peers that have reported substantial declines in earnings after being hit hard in the past year by volatile capital markets and increased claims.
China Life Insurance Co., China's largest life insurer, last month reported a 45% drop in 2008 net profit, while Ping An Insurance (Group) Co. of China Ltd. Wednesday posted a 99% plunge in 2008 earnings, mainly due to an impairment charge of $3.3 billion on its stake in Fortis NV.
China Pacific Insurance, which is 17.3%-owned by private-equity firm Carlyle Group LP, said its net profit for the 12 months ended Dec. 31 dropped to CNY1.34 billion ($196 million) from CNY6.89 billion a year earlier.
The sharp downturn of China's stock market caused the insurer to record a fair value loss of CNY742 million for its traded financial assets last year. The company posted a fair value gain of CNY235 million in 2007.
Total investment income dropped 70% to CNY8.41 billion from CNY27.66 billion a year earlier.
The poor investment performance was partly offset by a 29% increase in premium income to CNY84.14 billion from CNY65.39 billion in the previous year.
Despite the dismal 2008 results, analysts said they believe that the worst time for China's insurers is over, thanks to a stabilizing stock market and China's CNY4 trillion economic boost plan.
"Though the global economic downturn has been exerting negative impact on China's economy, the country's insurance industry still has huge potential to grow," said China Pacific in its annual report. "China's economic stimulus package will boost fixed-assets investment across the country, which will generate enormous demand for insurance products and provide us with a broad arena to grow business," the insurer added.
Shares of China Pacific Insurance have jumped 16% in the past two weeks, outshining a 3% gain in the benchmark Shanghai Composite Index, on hopes that Shanghai will offer tax breaks to encourage people to buy pension products. China Pacific Insurance is the second-largest shareholder of Changjiang Pension Insurance Co., which was set up by the Shanghai Municipal Government in 2007 to manage the city's CNY15 billion pension fund.
"The Shanghai government is studying the (tax break) plan," said an official at the government-run pension fund.
"But the program is less likely to be launched this year because it involves different government bodies and it's difficult for all the parties to reach consensus on the matter in the short term," the person said, who declined to be named.
Shanghai-based Pacific Insurance is China's third-largest insurer by market share after China Life and Ping An. It ranks second in the country's property insurance industry by market share, after PICC Property & Casualty Co.