Ping An Insurance (Group), China's largest insurer, has increased its investments in rental income property while cutting exposure to developers after taking a massive hit on China Fortune Land Development.

Of the insurer's 4.37 trillion yuan (US$633.9 billion) investment portfolio, real estate now accounts for 4.7 per cent, or 205.4 billion yuan, with 60 per cent invested in physical buildings, an increase of 10 percentage points from two years ago. The rest is in equities or bonds issued by developers or other property assets.

Ping An has been investing in warehouses, commercial buildings and data centres among other assets.

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"Since 2021, we have modified our approach a bit to real estate, with an emphasis on investing more in physical assets," said co-CEO Jessica Tan Sin-yin in an exclusive phone interview with the Post on Thursday, a day after the insurer reported a 17.6 per cent year-on-year decline in net profit to to 83.77 billion yuan last year. "This is because what we want is not really the developers themselves, but the assets. As long as the economy does well, they are going to give me stable rental income. That is very important to our investment strategy."

Ping An Insurance (Group) co-CEO Jessica Tan pictured in July 2017. Photo: Jonathan Wong alt=Ping An Insurance (Group) co-CEO Jessica Tan pictured in July 2017. Photo: Jonathan Wong>

"We have reduced our exposure to equity and fixed income investments in developers, [but] I want specific assets and projects," she added.

She said such a strategy has worked well because Ping An achieved an investment return of 4.7 per cent last year from its investment portfolio despite a volatile market.

The shift to real estate comes after a painful experience. In 2021, Ping An made a 43.2 billion yuan provision for its investments in China Fortune Land, in which it is the largest shareholder with a 25.2 per cent stake.

China Fortune Land, which focuses on developing industrial estates and urban projects, was among the first developers on the mainland to default on its debt amid a widening property slump that has sucked in peers such as China Evergrande Group, Modern Land (China) and Sunac China Holdings.

China Fortune Land began defaulting on loans in early 2021 and was seen as the first big casualty of Beijing's "three red lines" policy introduced in August 2020 to rein in excessive leverage and hot money flows in the property sector.

Tan said Ping An has been working with local governments to work on China Fortune Land's debt restructuring plan but the insurer has already made sufficient provisions and write-offs in 2021.

"There was no further impact on our result in 2022," she said. "If there is any asset recovery, we may see a positive impact from the write-back."

Tan said the outlook for this year is positive, noting that the completion of the company three-year plan to revamp its salesforce has reduced the number of agents to 450,000 last year from 600,000 a year earlier. While many unproductive agents were let go, the company also hired more educated agents, she said.

"Despite a smaller team of agents, the average productivity of each agent increased by 22 per cent," she said.

Ping An reported a solid start to the year, with premium income from life insurance policies across China rising 5 per cent year on year in the first two months of 2023. Tan expects the removal of Covid-19 restrictions in China will lead to higher sales, as its agents can travel freely to meet customers.

On Ping An's exposure to the fire at the under-construction Kimpton Hotel in Hong Kong's Tsim Sha Tsui district earlier this month, Tan said the compensation amount will not make a significant dent on the balance sheet.

"We have reinsurance contracts to share the compensation, so this will not have a material impact on our books."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.

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