PICC AMC, a fund management venture between PICC's parent group PICC Holding and German-based Meag Munich Ergo Asset Management, will boost its capital to 800 million yuan from 100 million yuan by getting more funds from existing shareholders and bringing in new investors, said PICC in a statement to the Hong Kong stock exchange.

Hong Kong-listed PICC will own 20 percentof the enlarged capital of PICC AMC, and - two other new investors - PICC Holding's units, PICC Life and PICC Health, will take up 10 percent, respectively.

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PICC Holding's interest in the venture will be diluted to 41 percent, from 81 percent, while Meag Munich's stake will remain unchanged at 19 percent, the statement said.

Beijing-based PICC, which in October 2003 mandated PICC ACM to oversee part of its funds, said the deal would help it to "better control investment risk and earn stable returns."

However, Merrill Lynch analysts Bob Leung and Alistair Scarff said the deal only provides extra "seed capital" to facilitate the parent group's expansion plan.

They said it would only have "limited real benefits" for the shareholders of listed PICC because PICC AMC's return on capital is only less than 2 percent.

PICC AMC posted a profit after tax of 1.92 million yuanin 2005 and has a net asset value of 102 million yuan as at the end of 2005.

"While this investment is relatively small, PICC will continue to be starved of capital as its parent PICC Holding continues its expansion into other areas of financial services," they said, adding that "they are not as comfortable" with PICC Holding's expansion pace due to PICC's own capital constraints.

Merrill Lynch maintains a "neutral" rating on PICC with a fair valuation at HK$2.66 per share.

Meanwhile, rating agency Standard & Poor's said Wednesday it has revised its outlook on China's insurance sector to "positive" from "developing" to reflect expectations that the financial strength of the overall industry will improve over the medium term.

S&P's expects the industry will continue to grow strongly as penetration stands at 2.7 percent compared with 7-10 percent in more developed markets.

"If penetration can be raised to about 3.5 percent within five years, which is a possibility, industry premiums will grow strongly by an average 15 percent a year, assuming the economy continues to expand by an average 8 percent annually," it said.

PICC shares gained 2 HK cents to close at HK$2.96 Wednesday after the announcement.