LONDON (Bloomberg) ? HSBC Holdings Plc, the biggest overseas investor in China?s financial-services industry, will spend $1.1 billion to double its stake in Ping An Insurance (Group) Co. as state benefit cuts spur demand for insurance policies.

HSBC agreed to pay HK$13.20 ($1.69) a share to increase its holding in Ping An, China?s second-largest insurer, to 19.9 percent, the maximum allowed under Chinese law, the London-based company said in a statement today. Shares of Ping An rose 5.4 percent, their biggest gain since the company went public in June.

China?s insurance market tripled in the past five years to $52 billion, equalling about five percent of the premiums collected in the US, which has a quarter of the population. HSBC, which was founded in Shanghai in 1865, bought stakes in three Chinese banks, an insurer and a fund manager during the past four years.

?HSBC can diversify its domestic operations, helping its future business development in China,? said Renault Kam, who helps oversee $1.8 billion at Atlantis Investment Management Ltd. in Hong Kong and doesn?t hold shares of HSBC or Ping An.

?HSBC is a relatively new player in China?s insurance market and it doesn?t yet have a dominant stake.?

The Ping An shares were sold at a nine percent premium to Friday?s closing price by Goldman Sachs Group Inc. and Morgan Stanley. Goldman and Morgan Stanley, both based in New York, paid $35 million each for 7.5 percent stakes in the Shenzhen, China- based insurer in 1994, according to Asian Venture Capital Journal, an investment publication based in Hong Kong.

Shares Rally

Ping An?s stock advanced to HK$12.75 in Hong Kong, with 19.7 million shares traded, almost triple the six-month daily average. Shares of HSBC gained 0.4 percent to HK$127.

HSBC has been increasing its business in the world?s most populous nation, where the economy expanded 9.5 percent in the first quarter. China?s 1.3 billion citizens, with $1.54 trillion in household savings at the end of February, are buying private insurance policies to rely less on the government, which is dismantling its former cradle-to-grave benefit system.

Ping An, which competes with China Life Insurance Co., PICC Property & Casualty Co. and China Pacific Insurance Co., was established in 1988. It sells life and non-life products using 213,143 sales agents and more than 3,000 branches across China.

Ping An?s net income climbed 43 percent to 1.62 billion yuan ($200 million) in the second half of 2004, buoyed by sales of more profitable life, health and injury policies. In the first quarter, it collected 17.8 billion yuan in premiums, 13 percent more than in the fourth quarter, based on Chinese accounting standards.

China Life, the nation?s biggest insurer, and Ping An together controlled half of the country?s insurance market in 2004, according to the industry regulator. American International Group Inc., Manulife Financial Corp. and other foreign insurers had a 2.3 percent market share.

New York-based AIG, founded in Shanghai in 1919, last quarter fell from the top spot among China?s overseas life insurers for the first time since 1992 as the company battled a US accounting probe that destroyed a quarter of its market value in less than three months. Chairman and Chief Executive Officer Maurice Greenberg, 80, resigned in March.

China?s life insurance market, valued at $39 billion in 2004, is expected to grow to 100 billion euros ($128 billion) by 2008 and become the fifth-biggest globally, said Winston Yung, a Hong Kong- based principal at consulting firm McKinsey & Co. The top four markets are the US, Japan, the UK and France.

?We are optimistic about the long-term prospects of the insurance industry in mainland China and believe Ping An is well positioned to benefit from the sector?s development,? HSBC Chairman John Bond said in the statement.

HSBC will fund the purchase of the additional shares through internal sources, Hong Kong-based spokesman Gareth Hewett said. Hewett declined to comment on possible changes in the directors.

Goldman Sachs and Morgan Stanley had their shareholding in Ping An reduced to 10.1 percent from 12.7 percent after the insurer?s initial public offering last June. HSBC bought one-tenth of Ping An in 2002 for $600 million.

HSBC acquired eight percent of Bank of Shanghai in 2001, and last year paid 14.5 billion yuan for 20 percent of Bank of Communications, China?s fifth-biggest lender. The UK-based bank started a fund management company with Shanxi Trust & Investment Corp. in September.

Hang Seng Bank Ltd., 62 percent owned by HSBC, paid HK$1.6 billion for 16 percent of Industrial Bank of Fujian in 2003.