China Insurers Lag Hang Seng on Concerns Stock Gains Will Fall

Jan. 22 (Bloomberg) -- China Life Insurance Co. and Ping An Insurance (Group) Co. paced declines in the shares of Chinese insurance companies today on concern that a decline in the value of their stock investments will hurt earnings.

China Life, the nation's biggest insurer, headed for a seven-month low, dropping 15 percent to HK$28 in Hong Kong trading at the 12:30 p.m. lunch break. Ping An, China's second largest, trimmed 12 percent to HK$60. The Hang Seng lost 8 percent, headed for its biggest two-day slump in a decade. China's benchmark CSI 300 Index fell 6 percent as of 1:30 p.m., headed for its biggest two-day decline in almost eight months.

``Investors are concerned that the rout will eat into earnings for Chinese insurers,'' said Liu Yang, who helps manage $4 billion as managing director of Atlantis Investment Management Ltd. in Hong Kong. ``If the stock markets continue to fall, their balance sheets will start hurting in about six months.''

Profits at domestic insurers have been powered by China's surging stock market, the world's best performer last year. Shenzhen-based Ping An depends on investment gains from stocks and bonds for about 30 percent of revenue.

Twenty insurers, including China Life, Ping An and PICC Property & Casualty Co., the nation's largest property insurer, received licenses to invest overseas, mostly in the Hong Kong market, the industry watchdog said on Nov. 30.

PICC tumbled 20 percent to HK$7.18 on the Hong Kong bourse, on course for its biggest fall since the shares started trading in November 2003.

Share Sale

Investors are also concerned that Ping An's plan to issue as many as 1.2 billion new shares in Shanghai will dilute shareholder value, according to fund managers.

Ping An has lost 74.7 billion yuan ($10.3 billion) in market value since the Jan. 18 close on the Shanghai bourse, when it announced the planned share sale. The insurer is seeking to replenish capital after investing 1.81 billion euros ($2.6 billion) in Fortis, Belgium's biggest financial company, to become its largest shareholder.

``Shares are tanking because investors are worried about dilution,'' said Lu Yizhen, who oversees the equivalent of $1.3 billion at Citic-Prudential Fund Management Co. in Shanghai. ``For Ping An it looked like a good time to sell shares because prices were so high. But the whole market's down right now, and funds and other institutional investors have little appetite.''

Ping An could raise 106 billion yuan, based on yesterday's closing price. The final price will be set at no lower than the average closing price of Ping An's Shanghai-listed shares in the 20 trading days prior to the listing document's publication or on the day immediately prior, the statement said.

Third-quarter profit more than quadrupled at Ping An, part- owned by HSBC Holdings Plc, as the insurer booked investment income of 17 billion yuan in the period.

China Life, based in Beijing, pulled in investment income of 20 billion yuan in the three months ended Sept. 30.