China Loosens Restrictions on Insurance Investments

August 12, 2010

China modified rules to allow insurance companies to invest as much as three times the previous limit in overseas capital markets, part of a broader reform designed to give them more investment options.

The move is seen boosting the investment incomes of Chinese insurance companies such as China Life and Ping An, though the sector’s shares did not react to the news and were buffeted by broader market trends on Thursday.

Chinese insurers will now be allowed to invest up to 15 percent of their total assets in overseas capital markets, the China Insurance Regulatory Commission said on its website.

The amount was previously capped at 5-10 percent of a company’s total assets depending on its solvency ratio, said Olive Xia, an analyst at Core Pacific Yamaichi in Shanghai.

China has been gradually loosening its restrictions on what insurance companies can do with their money, as insurers become more adept at investing and begin looking to diversify their investment options.

Insurance companies will also be able to invest up to 20 percent of their assets in equities as long as their total holding of stocks and stock funds do not exceed a combined 25 percent, the CIRC said in a statement on its website late on Wednesday.

“This is likely to help the insurance companies’ investment income,” said Xia. “Although the stock market isn’t doing too well right now, the insurance companies are likely to make more money from the stock markets which will likely boost their earnings in the medium term.”

Chinese insurance companies such as China Life and its smaller rival Ping An will also be allowed to invest up to 10 percent of their assets in infrastructure projects, CIRC said.

The regulator also set a ceiling of 20 percent for investment in secured corporate bonds and convertible bonds issued within China with at least an ‘A’ rating, and a similar 20 percent ceiling for unsecured securities with at least an ‘AA’ rating.

Not more than 10 percent of a company’s investible assets can be put in any one single unsecured bond, the CIRC added.

The Hong Kong-listed shares of China Life, the world’s most valuable insurer, were down 1.48 percent at 0425 GMT. By comparison, the benchmark Hang Seng Index was down 1.49 percent.

In Shanghai, China Life was down 1.02 percent, slightly worse than the benchmark Shanghai Composite’s 0.75 percent decline.

China Life had total investible assets of about 1.1 trillion yuan ($162 billion) at the end of the last reporting quarter in March, when it reported a 56 percent jump in investment income to 18.3 billion yuan.

China Life and Ping An currently put most of their investible assets in bonds, which are typically seen as safer investment bets but offer lower returns.

Both companies had said earlier this year they intend to increase the proportion of their portfolio invested in bonds this year, anticipating volatility in stocks after a major market run-up in 2009 helped boost their earnings. (Reporting by Farah Master and Ruby Lian in Shanghai and Kelvin Soh in Hong Kong; Editing by Muralikumar Anantharaman)

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