HONG KONG (Nikkei Markets) -- Ping An Insurance Group on Tuesday signaled an improvement in the performance of its core insurance business as it beat market expectations for 2018 earnings despite an accounting change that weighed on its investment income.
China's largest insurance company by market value reported higher premiums from life and health policies and in the value of the new business from that division following a painful transition for the company as well as the industry. It also posted strong growth in its relatively new fintech and healthtech businesses, an area where it has been investing heavily and reckons would be a growth driver, and announced a higher dividend and a buyback plan to reward employees with the company's stock.
Net profit for 2018 climbed 21% to 107.40 billion yuan ($16.01 billion), led by a 11% growth in revenue to 1.08 trillion yuan, with both figures beating estimates compiled by Refinitiv. The life and health insurance business' gross written premiums jumped more than 21%, while the value of new business increased -- a key industry metric to gauge the future value of premiums -- increased 7.3%, driven by the performance in the second half of the year after flat growth in the first.
Chinese insurers have been moving away from single-premium products toward a protection-oriented policy regime of recurring premiums, in a change that hurt incumbents in early 2018.
The life and health insurance business, which accounts for over half of the company's profit, saw a more than 30% decline in last year's investment income because of the adoption of new accounting standards. Under the previously used accounting standards for financial instruments, Ping An's net profit would have risen by a more robust 39.5% from 2017, the company said.
The results follow a profit warning for 2018 by China Life Insurance in January, which the state-owned insurer attributed to a "significant" drop in income from equity investments.
Ping An, which was founded in 1988 as China's first joint-stock insurance company, has benefited from the rapid economic growth in China over the years even as the country remains relatively underinsured.
While China was the world's third largest market for insurance in 2016 after the U.S. and Japan, penetration as measured by gross written premiums as a percentage of economic output was at only 4.2% that year, consulting major EY said in a June 2018 report. By comparison, the penetration level in the U.S. and Japan was 7.3% and 9.5%, respectively.
The company has been beefing up its technological capabilities. Last year, its patent applications nearly quadrupled to more than 12,000, reflecting the scale of its ambition in new technological areas involving Big Data and artificial intelligence.
Its operating profit from fintech and healthtech business increased 24.9% last year.
The company's Hong Kong-listed unit Ping An Healthcare & Technology, an online diagnostics and medical appointment-booking service that is also known as Ping An Good Doctor, last month reported a loss of 911.7 million yuan for 2018, narrowing from a 1 billion yuan loss a year ago.
Meanwhile, the company's banking unit Ping An Bank made "significant" progress in its strategic transformation toward retail banking as it continued to "de-risk itself and strengthen its risk compensation," Ping An said on Tuesday. Ping An Bank's profit rose 7% last year, trailing a 10.3% increase in revenue.
Ping An announced a 14.7% increase in annual dividend to 1.72 yuan. The company had distributed the 30th anniversary special dividend of 0.20 yuan per share in the first quarter last year.
Ping An said in a separate statement late on Tuesday that its board had approved a proposal to spend between 5 billion yuan and 10 billion yuan of its own funds to buy back the company's yuan-denominated A-shares listed in Shanghai. The buyback, subject to shareholder approval, will be exclusively for the employee stock ownership plan, it said.
Ping An's Hong Kong-listed shares rose 2.1% on Tuesday before it declared results, while the city's benchmark Hang Seng Index rose 1.5%.
-- Benny Kung and Lopamudra Bhattacharya