Chinese state-controlled insurer PICC Property and Casualty Co Ltd (PICC P&C) is raising 5.76 billion yuan ($938 million) to bolster capital, expecting strong growth and amid signs that profitability of Chinese insurers are coming under pressure.

China's property and casualty insurance market is expanding between 10 to15 percent annually, making it the fastest growing in the world. That growth also makes it imperative for the insurers to maintain adequate capital buffers as required by the regulator.

"In anticipation of premium growth, PICC P&C wants to issue new shares to shore up its balance sheet," Sally Yim, vice president Moody's said.

PICC Property and Casualty (PICC P&C), which has 34.9 percent market share of China's P&C insurance market by premium, said late on Monday it plans a rights issue shares in Shanghai and Hong Kong.

It is offering 930 million shares in Shanghai's domestic currency A-share market at 4.3 yuan ($0.70) per share and 418 million H-shares on the Hong Kong stock market at HK$5.38 apiece, PICC P&C said in a filing with the Hong Kong stock exchange.

The People's Insurance Company (Group) of China Ltd, which owns 69 percent of PICC P&C, and American International Group Inc, which owns 9.9 percent stake in PICC P&C, have agreed to subscribe to the rights offer and maintain their share holdings in the insurer.

"Clearly, profitability of Chinese P&C (property and casualty) insurers is under pressure which would reduce their ability to rely on profits to boost capital base. This is another reason why PICC P&C is tapping capital markets for funds," said Yim.

"And profits could deteriorate further as the companies try to gain market share by cutting prices, which we are closely monitoring."

PICC P&C's Hong Kong shares fell 2.6 percent on Tuesday.

China's P&C industry is dominated by three insurers, with PICC P&C, Ping An Property & Casualty Insurance and China Pacific Property Insurance Co controlling two-thirds of the market by premiums.

Last year, PICC Group raised $3.1 billion through a Hong Kong IPO, giving it the flexibility to participate in the rights offer, analysts said.

Moody's Yim said Ping An Property & Casualty Insurance and China Pacific Property Insurance Co (CPPIC) - the No. 2 and No. 3 P&C insurers in China - may also need to raise capital, though it is more likely that Ping An would be issuing subordinated debt domestically, while CPPIC could rely on its parent to inject capital.

CICC, HSBC and Goldman Sachs are joint lead underwriters and joint lead bookrunners of the offer.

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