China’s Ping An Insurance plans to add external managers for equity and bond investments and boost its allocation to asset classes such as overseas allocation, preferred shares and warehouse property this year. Chief investment officer Timothy Chan expects to have an additional Rmb250 billion ($38.3 billion) to invest this year.

Meanwhile, the second biggest mainland insurer is taking a cautious view in light of the economic downturn and asset quality deterioration in China, so has made improvements to its credit rating system and conducted frequent stress tests on its portfolio, said Chan.

Ping An saw its investable assets grow 17.5% last year to Rmb1.73 trillion from Rmb1.47 trillion in 2014. The portfolio – which includes the life and property-and-casualty assets – generated gross return of 7.8% last year, up from 5.1% in 2014, according to its annual report.

The firm plans to expand its use of external managers to boost investment returns and improve risk management, Chan said yesterday on a conference call from Shanghai. He did not specify by how much it planned to increase its use of external managers or its exposure to various asset classes.

Some Rmb50 billion, or 2.9%, of Ping An’s assets are run externally. Last year its equity managers generated average returns of 42%, while its bond managers returned 10%. Chan did not indicate whether the managers were domestic or overseas firms, but the return figures suggested they are probably onshore fund firms. The average return of Chinese equity funds last year was 35% and Chinese bond funds 15%, by Morningstar data.

Meanwhile, Ping An is increasingly moving into new instruments and asset classes, such as convertible bonds, preferred shares and mezzanine debt funds.

A notable change in the group's portfolio in the annual report was its first disclosure of an allocation to preferred shares. It put a Rmb44 billion (2.5%) of its portfolio into these instruments last year, almost quadrupling its Rmb12 billion allocation in 2014. Preferred shares – which are exempt from dividend tax in China – generated returns of 5.3% for Ping An last year.

The insurer has also been raising its exposure to both mainland- and Hong Kong-listed high-dividend stocks, which yielded 5.5% last year.

Such portfolio shifts have helped it achieve stable income amid a volatile stock market and falling interest rates, said Chan.

Moreover, Ping An plans to invest more in foreign assets and real estate – especially warehouse logistics – this year. The firm gains its foreign exposure via its offshore arm, Ping An of China Asset Management (Hong Kong), and had allocated Rmb25 billion (1.5%) to property as of end-2015.

However, rating agencies have in the past week issued further warnings on Chinese insurers’ portfolio risks. Moody’s said yesterday that mainland firms' rising investment exposure to equities and “alternatives” – which tends to refer to infrastructure debt, asset management schemes and trust products – had resulted in higher sensitivity to economic risks and lower transparency and liquidity. 

Accordingly, Chan stressed the importance of risk controls amid an economic downturn. Ping An standardised its internal credit rating approach among its investment subsidiaries last year, set up new reserves for risky debt investment projects and had frequent stress tests of its securities portfolio’s liquidity and sensitivity to market volatility, he noted.

Eighty percent of the firm’s fixed income assets are rated AAA internally, while the minimum external rating is AA, Chan added.

Ping An Life received the prize for the insurance company (general account) category late last year as part of AsianInvestor’s Institutional Excellence Awards 2015.