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PICC Surges in Debut as Valuation, Growth Attract Buyers

PICC Group Rises in Debut as Valuation, Growth Attract Investors
Signage for the People's Insurance Co. of China Group (PICC) is displayed on a building in Beijing, China. Photographer: Keith Bedford/Bloomberg

People’s Insurance Company (Group) of China Ltd. surged in its Hong Kong trading debut as investors embraced the city’s biggest initial public offering in two years for its relatively low valuation and growth potential.

The shares jumped 6.9 percent from the offering price to close at HK$3.72. The Beijing-based company sold about 6.9 billion shares last week in Hong Kong, raising HK$24 billion ($3.1 billion). The benchmark Hang Seng Index fell 0.3 percent.

PICC Group combines a bellwether in China’s property insurance market that Macquarie Securities Ltd. said is in a “new era of profitability” with life-insurance operations that grew at triple the industry average pace in the past three years. The HK$3.48 IPO price, near the bottom of a marketed range, valued the insurer at 0.8 times to 1.5 times embedded value in the first half of this year, and compares with the 1.6 times at China Life Insurance Co., the nation’s biggest life insurer, and Ping An Insurance (Group) Co.’s 1.5 times, Core Pacific-Yamaichi International Ltd. said.

“The company has priced the stock at a relatively low level, leaving the IPO investors some room” to reap gains, said Olive Xia, a Shanghai-based analyst at Core Pacific-Yamaichi. “PICC Group also has a good chance in life insurance going forward” if it can improve its product mix and profitability to take advantage of its rapid premiums growth.

Best Performer

The rally today may make PICC Group the best trading-debut performer in Hong Kong among Chinese insurers since China Life’s 25 percent surge in December 2003, according to data compiled by Bloomberg. Ping An gained 0.7 percent as its shares first traded in the city in June 2004, while China Pacific Insurance (Group) Co. gained 1.1 percent on its first trading day in December 2009.

PICC Group still seeks to sell local-currency shares at an opportune time, while it doesn’t plan to raise more capital in Hong Kong during China’s 12th Five-Year Plan period, which ends in 2015, Chairman Wu Yan said at a press conference in Hong Kong.

The insurer defied a 78 percent slump in the value of Hong Kong IPOs this year, thanks in part to $1.82 billion of pre-negotiated investments with American International Group Inc. and 16 other so-called cornerstone investors, to complete the offering. Before the sale, companies had raised $3.5 billion in Hong Kong IPOs this year, the lowest for similar periods since 2001, data compiled by Bloomberg show.

Property Insurance

PICC Group derives most of its profit from Hong Kong-listed unit PICC Property & Casualty Co., China’s biggest property insurer whose 36 percent market share last year was more than double that of the second-largest player Ping An. The unit’s net income jumped 24 percent in the first half of this year after its underwriting profit margin rose to the highest since its shares first traded in 2003.

China’s property insurance premiums more than quadrupled to 478 billion yuan ($77 billion) last year since 2004, as the nation’s economy expanded and car sales jumped. The nation’s motor insurance sector has turned profitable since 2009 as regulatory controls on price competition tightened, reversing years of losses in an industry where about 70 percent of premiums come from motor insurance.

The property insurance sector in China “is in a new era of profitability and balance-sheet strength,” Scott Russell, an analyst at Macquarie Securities in Hong Kong, said in an interview with Bloomberg Television Nov. 29. “The next 10 years is going to be a lot better than the past 10 years.”

Gross Premiums

PICC Life Insurance Co.’s gross premiums jumped 51 percent from 2009 to 70.4 billion yuan in 2011, according to the prospectus, compared with a 17 percent average pace in the nation’s life-insurance market. Growth has been driven mainly by less-profitable, single-premium products sold over bank counters, Xia said.

Founded in October 1949, PICC Group offers property, casualty, life and health insurance products and operates units in asset management and insurance brokering. It had about 130 million individual customers and 2.4 million institutional clients at the end of June, according to its prospectus.

Unit PICC Property surged 50 percent in its Hong Kong trading debut on Nov. 6, 2003, after raising HK$5.4 billion in the first overseas share sale by a Chinese insurance company. New China Life Insurance Co., the nation’s third-largest life insurer, slumped 9.8 percent on its first trading day in the city on Dec. 15, 2011.

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