Ping An Insurance, the world’s second-largest insurer by market value, recorded a 99 per cent drop in net profit in 2008 thanks to huge losses from its stake in stricken European financial group Fortis.
The value of Ping An’s 4.8 per cent Fortis stake has dropped more than 90 per cent since it spent almost Rmb24bn ($3.5bn) in late 2007 and early 2008 to become the largest single shareholder.
Ping An, which is 16.8 per cent owned by HSBC, earned just Rmb268m in net profit last year after taking a combined Rmb22.8bn impairment loss on its Fortis investment.
Ping An actually recorded a pre-tax loss of nearly Rmb3bn in 2008, but changes to Chinese tax laws and a large tax rebate allowed it to post a small profit.
Earnings per share fell from Rmb2.61 in 2007 to Rmb0.04 last year, and the company decided to pay no dividend.
The 99 per cent drop in profit from a year earlier contrasts with a 138 per cent jump to Rmb18.7bn in net profit in 2007.
“In 2007, Ping An made the decision to invest in Fortis after prudent consideration and due diligence.
“Unfortunately, the global financial crisis has caught many investors off guard and the share price of Fortis was not immune,” Peter Ma, Ping An founder and chairman, said in a statement last night.
The losses from Ping An’s offshore foray were partly offset by a 20 per cent increase in gross premium income and policy fees to Rmb98bn last year.
The company is expected to fare much better this year as long as it does not make any more poorly timed investments.
Ping An’s overall solvency ratio is above 300 per cent while its banking unit’s capital adequacy ratio is above 10 per cent.
As well as its Fortis losses, Ping An is still involved in shareholder disputes that saw it block a deal in February in which the Belgian government had arranged to sell most of Fortis’s banking operations to BNP Paribas.
Ping An has refused to comment on a revised but similar deal that goes to a shareholder vote at the end of the month.
Looking ahead, Mr Ma said the operating environment for Ping An would continue to be very challenging but in spite of the lesson of the Fortis investment he indicated the company would continue to look for global expansion opportunities.
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