PICC Property & Casualty Co., China’s biggest non-life insurer, said it plans to raise 7.25 billion yuan ($1.2 billion) in a rights offer in Hong Kong and China to replenish capital. The shares dropped.

The insurer will offer 0.9 rights shares for every 10 shares held, according to a Hong Kong stock exchange statement yesterday. PICC P&C, based in Beijing, said it will price the Hong Kong-traded shares at HK$7.46 each, a 47 percent discount to yesterday’s close, and the domestic shares at 5.92 yuan each.

The proceeds will raise the insurer’s solvency margin ratio, a gauge of its ability to settle claims, to more than 200 percent from 181 percent as of June 30, according to Credit Suisse Group AG, giving it more room to expand its business. China’s three-largest non-life insurers’ premium growth slowed to 16 percent in the third quarter from 17 percent in the second quarter as auto sales weakened, Hong Kong-based Bloomberg Intelligence analyst Steven Lam wrote last month.

“We don’t fully see the need for the rights issue,” Credit Suisse’s Hong Kong-based analysts led by Arjan Van Veen wrote in a report, citing a likely reduction in solvency requirements next year. “However, it does provide PICC P&C additional flexibility, particularly with regard to its reinsurance arrangements.”

The analysts cut the company’s price target to HK$17.15 from HK$18.00 to allow for the dilution.

Vehicle Insurance Sales

PICC P&C’s shares fell 3.4 percent, the most in more than a month, to HK$13.68 in Hong Kong trading as of 10:20 a.m. local time, trimming this year’s rally to 19 percent. The benchmark Hang Seng Index dropped 0.4 percent.

China’s vehicle sales grew at the slowest pace in 19 months in September, according to the China Association of Automobile Manufacturers, hampering vehicle insurance sales, the biggest business segment for the nation’s non-life insurers.

The company plans to sell 379.8 million H shares and 844.6 million domestic shares in the offering, according to the statement. People’s Insurance Company (Group) of China Ltd., the parent, will subscribe to 5 billion yuan of stock, it said in a separate statement.

Net income at PICC P&C rose 2.1 percent from a year earlier to 7.79 billion yuan in the first half of this year, the company said in August.

–With assistance from Zhang Dingmin in Beijing.