(Reuters) — Ping An Insurance Group Co. of China Ltd., Asia's second-largest insurer by market value, posted a better-than-expected 39.5% rise in annual profits on Thursday as investment income soared on the back of China's rising stock markets.

Ping An made a net profit of 39 billion yuan ($6.23 billion) in the year ended Dec. 31, above analysts' average estimate of 38 billion yuan ($6.07 billion), according to Thomson Reuters data. It was the company's highest profit since 2003.

The profit gains were largely due to the fact that Chinese insurers can book gains in their investment portfolios as profits. China's benchmark Shanghai Shenzhen CSI 300 index has risen 75% in the last year.

China's insurance regulator said at its annual conference in January that the industry recorded an average yield on investments of 6.3% in 2014, compared with 5% a year earlier, leading to a doubling of industry profits.

The company said that its life insurance unit, which accounts for 40% of overall profits, saw the value of new business increase by 20% year on year.

Analysts see the value of new business, which measures expected profits from new policies, as a more indicative measure of Chinese insurers' success than net profit figures which can be distorted by fluctuations in their investment portfolios.

While the group's insurance unit posted bumper profits on the back of the investment gains and strong sales of insurance policies, analysts remain concerned about rising bad loans at its banking unit.

While Ping An Group insists on the benefits of its universal financial services model comprising insurance and banking, analysts say the bank's aggressive loan expansion in a slowing economy has made it too risky.

"(Ping An) Group is a sum of the parts of 2/3 low return/ high risk bank and 1/3 well run insurance business," wrote Linda Sun-Mattison, analyst at Bernstein Research, in a note ahead of the results announcement.

Ping An Bank earlier this month reported strong annual profit growth of 30%, but also reported a 39% increase in nonperforming loans for the year as China's economic growth slows.

Ping An Group's shares closed down 2% in Shanghai on Thursday, underperforming China's benchmark Shanghai Shenzhen CSI 300 index which ended the day flat.