SHANGHAI/HONG KONG (Reuters) -China's Ping An Insurance (Group) reported a 26.4% decline in first-quarter net profit on Friday, citing reduced investment income.

The insurance giant said net profit for the three months to March 31 was 27.02 billion yuan ($3.71 billion), down from 36.71 billion yuan a year earlier.

With large investment portfolios, China's insurers are prone to big swings in reported profits.

Ping An's investment income dropped 65% in January-March from a year earlier to 10.44 billion yuan.

Before the recent turmoil in global financial markets and as persistent deflationary pressures weighed on China's economic recovery, insurers increased their stock market exposure as bond yields continued to fall.

In January Beijing also called for insurance funds to increase investment in the stock market, which has since been hit by rising tensions between China and the United States.

Ping An's banking unit weighed on the group's results, with Ping An Bank reporting a 5.6% drop in first quarter net profit. However, the group's insurance business remained healthy.

Group operating profit, a gauge used to measure operations excluding investment volatilities, rose 2.4% in January to March.

The number of retail customers rose 1% year to date to 245 million at the end March, the filing showed.

The new business value of the life and health insurance business, which measures the profitability of new policies sold, grew 34.9% to 12.89 billion yuan.

Ping An is the largest shareholder in global banking group HSBC.

Ping An co-CEO Michael Guo said in an interview that the insurer is "very happy" with the direction HSBC has taken under new CEO Georges Elhedery, Bloomberg reported in March.

This marked a dramatic turnaround after a tumultuous relationship between the two companies in the past two years. Ping An had previously pushed for a separation of HSBC's Asian operations, a proposal ultimately defeated at HSBC's annual shareholder meeting.

HSBC's recent strategic shift includes scaling back its mergers and acquisitions and equity capital businesses in Europe and the Americas, reflecting its increased focus on Asian corporate clients over companies in the West amid growing geopolitical tensions.

($1 = 7.2857 Chinese yuan renminbi)

(Reporting by Engen Tham, Selena Li and Ziyi TangEditing by David Goodman and Susan Fenton)

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