Online Insurer ZhongAn Posts Annual Loss Amid Fast Expansion

China’s first online insurer reported its first annual net loss of nearly 1 billion yuan in 2017 due to rising business costs and unearned premium reserve payments, the company said on Tuesday.

ZhongAn Online Property & Casualty Insurance reported premium revenue of 5.95 billion yuan ($938.9 million) in 2017, up 74.7% from the previous year. But the company saw a net loss of 996 million yuan, compared to a 9.37 million yuan profit in 2016.

ZhongAn Chief Financial Officer Deng Ruimin attributed the loss to rising costs generated by rapid business expansion, increasing unearned premium reserves — which appear in the liability of insurers’ balance sheet to reflect the amount of premiums written but not yet earned — and losses caused by foreign exchange fluctuation after the insurer’s $1.5 billion initial public offering in Hong Kong in September.

ZhongAn said its health insurance business enjoyed fast growth in 2017, with premiums rising to 1.2 billion yuan from 235 million yuan the previous year. Premiums of consumer credit insurance policies rose from 318 million yuan to over 1 billion yuan. Automobile insurance and personal accident policies are also main contributors to ZhongAn’s revenue.

Established in 2013, the Shanghai-based insurer is backed by tech giant Alibaba Group Holding Ltd., Tencent Holdings Ltd. and Chinese insurance major Ping An Insurance.

ZhongAn’s premium growth in the first two months this year surged 119% from the year earlier to 1.3 billion yuan. But Deng said fast-rising unearned premium reserves may continue affecting the company’s profits this year.

ZhongAn CEO Chen Jin said that although the company’s profit margin is being squeezed by fast expansion, ZhongAn’s business has remained healthy.

Caixin has learned that ZhongAn is one of the applicants for a long expected pilot program approved by the State Council last year that will allow mainland firms to freely convert their nonlisted “domestic shares” into “H-shares,” which are traded on the Hong Kong Stock Exchange. 

The program will allow founders or major shareholders of mainland firms to float their shares on the Hong Kong bourse, where nonmainland investors can buy them without being qualified investors on the Chinese mainland.

On March 11, ZhongAn released its revised corporate charter, which added terms regarding the conversion of company shares. The revision sparked expectations that ZhongAn is preparing for the convertibility pilot program.

Chen didn’t confirm whether ZhongAn will take part in the program, but he said ZhongAn has closely monitored the pilot program and believe the full convertibility will offer a good opportunity for ZhongAn to access investors and improve corporate governance.

Contact reporter Han Wei (weihan@caixin.com)