PICC, China's largest property insurer, failed to meet official capital requirements and plans to use some of the anticipated US$500m-650m to be raised in this month's Hong Kong float to plug the shortfall, reported the Financial Times. The China Insurance Regulatory Commission (CIRC) set a minimum solvency margin of Yn5.9bn for December 31 2002, while the share prospectus admitted that the insurer's margin by that date was only Yn2.8bn. CIRC can make companies take action, including forcing disposal of assets, to make up capital shortfalls. PICC, which controls more than 70 per cent of China's non-life market, said the CIRC had given it special exemption until 2006 to meet solvency requirements.
The financial health of PICC is being watched closely as it is the first of three large Chinese insurers due to list in Hong Kong in the next few months. Its listing was earlier aided when US insurer American International Group (AIG) agreed to buy a 9.9 stake for about US$200m. AIG said it would help train many of PICC's 26,000 sales staff and 65,000 agents. AIG is thought to be attracted by PICC's extensive network of 4,300 branches and its expected net profits of US$181m this year.
The stake purchase was expected to increase pressure on China Life and Ping An to find similar strategic foreign partners ahead of their scheduled Hong Kong listings.