Ping An boosting overseas assets

Ping An Insurance (Group) Co, China's second-largest insurer, is boosting overseas assets as the nation's slowing economy and falling interest rates make it difficult to find investments with attractive returns at home.

The company has about 16 billion yuan ($2.5 billion) of deals abroad in the works for 2015, and expects total investments overseas to rise to as much as 50 billion yuan by year-end upon full payment, from about 33 billion yuan, Chief Investment Officer Timothy Chan said in Shanghai on Friday.

More than 10 billion yuan of the new deals are property related, including two projects in the United Kingdom and a $650 million asset-backed-securities project in the United States, he said, declining to name targets.

While a stock-market rally helped triple Chinese insurers' profits in the first half of the year, an ensuing rout of almost 40 percent from a June 12 high and further anticipated rate cuts threaten to depress returns on new cash from policy sales and maturing investments. The benchmark Shanghai Composite Index tumbled as much as 8.5 percent on Monday, erasing this year's gain, as government support measures failed to bolster equities.

"When interest rates drop, reinvestments face bigger risks," Chan said. "We are facing this pro-actively and preparing in advance."

Ping An has signed an asset-backed securities agreement with a United States logistics company, where the insurer will buy a basket of rental properties from the seller and lease it back for a roughly 8 percent yield based on net operating income, Chan said. Overseas investments will expand gradually, he said, adding that foreign markets also face structural issues like aging of the population and high leverage.

The insurer's first-half net income jumped 62 percent as investment yields expanded and premium income rose.

Domestically, Ping An will keep focusing on fixed-income securities in the second half, and may put as much as 80 percent of new money into such instruments, compared with the category's asset weighting of about 77 percent as of June 30. It will seek to boost longer-maturity debt holdings, with a preference for seven-to 10-year debt, to lock in yields that "remain relatively high" before further rate cuts.

"China's real interest rate is still high and from now on through next year should be heading lower, as the central bank will cut lending rates or reserve requirements," Chan said.

To arrest the economic slowdown, the People's Bank of China, the central bank, has cut interest rates four times since November and reduced the amount of cash that lenders must set aside as reserves.

Ping An will also consider buying bonds that policy banks are expected to issue to finance infrastructure construction, he said. The company is in talks with some State-owned enterprises for potential investments as part of their shareholding reforms, he said without naming any.

The insurer expects to focus on "defensive growth stocks" in China's equities market in the second half, such as innovative finance, medical and consumer-durables companies, as they are the main beneficiaries of slowing inflation and economic growth as well as falling interest rates, Chan said.