  zhongan online has forecast a net loss of 13 billion yuan to 15 billion yuan for 2022 due to plunging investment returns and hefty foreignexchange losses   but the company’s revenue from premiums rose 16 to around 2365 billion yuan with growth accelerating in the second half of the year last year’s rout on the stock and bond markets was a rollercoaster ride for many investors but online insurer zhongan online p  c insurance co ltd 6060hk suffered a particularly severe case of motion sickness the company provides online insurance and digital banking services ploughing much of the income into financial assets to generate investment returns that means its performance closely tracks the ups and downs of the markets little surprise then that last year’s earnings turned upside down the insurer issued a profit warning on feb 17 forecasting a net loss of between 13 billion and 15 billion yuan 189 million and 218 million for 2022 a nosedive from a net profit of 117 billion yuan for the previous year the size of the predicted secondhalf loss came as a surprise at about 678 million to 878 million yuan compared with market expectations of 660 million to 750 million yuan zhongan had already reported a net loss of 622 million yuan in the first half of the year the company blamed the profit plunge on poor investment returns from capital markets last year as well as a significant change in the way financial instruments were recorded on its books the insurer switched last year to an international financial reporting standard known as ifrs 9 brought in after the global financial crisis to better flag up credit risks zhongan said the new accounting standard wiped 1 billion to 12 billion yuan off the profit contribution from investment returns the us dollar’s rise against its chinese counterpart last year was also a factor as the company reported unrealized foreignexchange losses on bonds denominated in the us currency the difference between the forecast net loss and the fall in investment profits indicates that the foreignexchange loss could be up to 300 million yuan the change in accounting policy has taken a toll on zhongan as the insurer relies heavily on gains from investing its policy premiums in the crisis triggered by the us subprime market implosion in 2008 traditional accounting methods came under critical scrutiny for underestimating the scale of losses in the financial industry postcrisis reforms gave rise to ifrs 9 for financial instruments which was adopted in hong kong after 2018 in 2021 zhongan reviewed its hong kong subsidiary za bank and concluded that the business was no primarily involved in insurance therefore it adopted ifrs 9 on jan 1 leaving the fair value of its financial instruments more exposed to market downturns but as markets are expected recover from a harrowing 2022 the damage could be temporary according to zhongan’s firsthalf report the amount of financial assets at fair value through profit or loss was adjusted to 2328 billion yuan on jan 1 2022 from 1181 billion yuan as of dec 31 2021 a leap of 1147 billion yuan as stocks and bonds plunged last year the accounting loss on the company’s assets showed up on the income statement for the first time however excluding the accounting effects credit suisse estimates zhongan’s actual net loss last year was a rather more palatable 300 million yuan the investment bank also expects the insurer to swing back into profit this year propelled by innovative products and a nearly 20 jump in premium income therefore credit suisse is keeping its “neutral” rating with a price target of hk23 judging from shareprice action investors are also positive about the company’s business prospects despite the red ink staining its books a day after the profit warning zhongan shares rose 82 capital markets are expected to pick up in the first half of this year barring any unforeseen shock on the scale of the conflict in ukraine the longterm outlook for interest rates is still hazy but the us dollar has come off last year’s peaks with the dollar index dropping to 104 from september’s high of 114 china has also ramped up economic support since lifting its “zerocovid” policy pumping cash into the financial system and calming market nerves the more favorable conditions should allow zhongan to boost its investment revenue in the first half of this year zhongan said its total income from premiums was about 2365 billion yuan last year a rise of 16 from 2021 in the first half the premiums revenue rose nearly 7 to 1052 billion yuan the yearonyear growth rate accelerated in the second half as revenues jumped nearly 25 to 1313 billion yuan the company also expects to achieve a better combined ratio on its underwriting business for 2022 than the previous year helped by what it called technologydriven cost reductions and higher efficiencies the ratio a gauge of profitability measures outgoings relative to premiums online property insurance has always been the main earner for zhongan but the business relies on investment income for most of its profit with only a small percentage coming from underwriting policies thus market losses and the strong dollar can cancel out a healthy rise in premiums in the first half of last year for example total online property insurance premiums were 052 billion yuan but underwriting profit was merely 8393 million yuan the whole online property and casualty insurance business landed 305 million yuan in the red hit by fairvalue investment losses of 165 million yuan a foreignexchange hit of 316 million yuan and 207 million yuan in finance costs what’s more zhongan’s techrelated businesses such as online banking in hong kong and digital insurance broking were still mired in losses by the middle of last year investors may be understandably disappointed that a company defining itself as an online insurer is still bleeding red ink from its technology operations despite last year’s loss zhongan does not have any solvency issues and easily meets regulatory requirements the problem lies in its reliance on bumpy markets for profitability the company’s current pricetosales ps ratio of 119 times is higher than the 021 times and 105 times for online insurance platforms huize holding huiz and fanhua inc fanh but it lags the 301 times of health insurance marketplace waterdrop inc wdh which is not an active investor in financial markets and has turned a net profit for three straight quarters zhongan may swing back into the black this year but it will need to sort out its tech and banking operations to sustain investor confidence in the long run