Strong debut for China Pacific

China Pacific Insurance (Group) Co, the country's third largest insurer, surged 61 percent in its Shanghai trading debut yesterday, backed by fast business growth and improved profitability.

China Pacific's A shares jumped to 48.17 yuan from an initial public offering price of 30 yuan, near the higher end of market expectations.

"China Pacific's first-day trading price shows that investors are still rational, and my expectation for the company's price within six months is 54 yuan," said Wang Xiaogang, an analyst with Orient Securities.

The insurer's advantage, Wang said, is its rapid business growth, the strong profitability of its non-life insurance arm and good investment returns.

Premiums at China Pacific expanded 38.5 percent in the first 10 months of this year, compared with the 6.2 percent growth for China Life and 15.4 percent for Ping An, according to the China Insurance Regulatory Commission. Its average annual investment return from 2004 to 2007 was 5.91 percent, higher than China Life's 5.73 percent and slightly less than Ping An's 5.94 percent.

Unlike rivals China Life and Ping An, China Pacific will focus on insurance rather than expanding into other financial sectors like banking and securities, the company's chairman Gao Guofu told reporters earlier this month.

"We will firstly strengthen our foothold in the insurance sector. But we will not rule out the possibility of investing in banking, securities or fund management companies," said Gao.

China Pacific is the third insurer to trade on the Shanghai Stock Exchange. The country's largest life insurer China Life raised $3.6 billion in December 2006. Shenzhen-based Ping An, the nation's second largest insurer, raised $5 billion in February in the world's biggest stock sale by an insurer.

China Pacific raised $4.1 billion by selling 1 billion A shares, or 13 percent of its expanded capital, to boost its capital base. It also said it would seek to issue up to 900 million H shares for a Hong Kong listing, although it has yet to announce a timetable for the H-share offer.

It said its H shares would be priced no lower than the Shanghai price of 30 yuan apiece, meaning its H-share offer could raise as much as $3.7 billion and bring the total amount to be raised in its two equity offers to $7.8 billion.

Shares in Ping An and China Life, however, respectively dropped 2.72 percent and 2.92 percent yesterday. The Shanghai Composite Index declined 0.63 percent to close at 5201.18.

China Pacific controls the nation's third largest life insurer and second biggest property and casualty insurance underwriter. It had 9.5 percent of China's life insurance sales in the first half and 11.6 percent of non-life policies, according to a share sale document published earlier this month. The firm derived 65 percent of its premium revenue from life insurance in the first half.