A Shenzhen Development Bank Co exhibit for its small-business financial services at a banking industry conference in Shanghai.[Photo/China Daily]

BEIJING - Ping An Insurance (Group) Co, China's second-biggest insurer, said it will spend as much as 20 billion yuan ($3.1 billion) to bolster capital at Shenzhen Development Bank Co after first-half profit rose.

Net income climbed 33 percent to 12.8 billion yuan, or 1.67 yuan a share, from 9.61 billion yuan, or 1.30 yuan, a year earlier, as premium income and investment returns expanded, the Shenzhen-based insurance company said on Wednesday in a filing to the Shanghai stock exchange.

Ping An, led by Chairman Peter Ma, boosted net premiums by 39 percent as the insurer's focus on telemarketing and agents helped bolster revenue amid slower car sales and tighter regulation on selling policies at banks. The insurer will buy as many as 1.19 billion more shares in Shenzhen Development, adding to its 52 percent stake, to boost capital and ensure "balanced" growth in its banking, insurance and asset-management operations, the company said in a statement.

"Profit was slightly better than expected; banking and non-life operations were fairly good," said Nan Sheng, a Shanghai-based analyst at UOB Kay_ Hian Investment Co. "We can't exclude fund raising pressures at the group now because after the injection they won't have too much more money to recapitalize the insurance units" when needed to support growth.

Ping An's shares rose as much as 3.4 percent and fell 2.3 percent to HK$65.50 ($8.42) as of 2:33 pm Hong Kong time. They are down 25 percent this year.

Net investment income, mainly dividends and bond yields, rose 29 percent to 16.2 billion yuan, according to the statement. The company also reported 551 million yuan in realized and unrealized investment gains, reversing a 2.2 billion yuan loss a year earlier. The benchmark Shanghai Composite Index dropped 1.6 percent in the first half, compared with a 27 percent rout a year earlier.

Shenzhen Development, which posted a 56 percent surge in first-half profit, plans to sell the shares to Ping An in a private placement for 16.81 yuan apiece, the lender said in a statement. The sale will boost the bank's capital-adequacy ratio to more than 13 percent once completed, and will lift Ping An's stake to at least 59 percent but no more than 61 percent.

Ping An booked 1.2 billion yuan of net income from its investment in Shenzhen Development in the first six months of 2011, almost half of its banking profit, according to the statement.

The insurer raised HK$19.4 billion in March selling shares to Chow Tai Fook Nominee Ltd, controlled by the family of Hong Kong tycoon Cheng Yu-tung, to boost capital after saying in September it will pay 29.1 billion yuan for control of Shenzhen Development Bank to enhance its banking operations.

Ping An's solvency margin, which measures an insurer's ability to settle claims, rose 2.1 percentage points in the first half to 200 percent as of June 30, the company said. A further 20 billion yuan purchase of Shenzhen Development shares will reduce the gauge to about 172 percent, Sheng estimates.

Chinese insurers may be subject to dividend payout restrictions when solvency ratios drop below 150 percent, according to government rules.

Bloomberg News