Chinese insurance companies are now allowed to invest their cash
in another place under new rules released yesterday.
The pilot regulation, drafted by the China Insurance Regulatory
Commission (CIRC), will allow qualified insurance companies to make
indirect investments in infrastructure projects, albeit with
various restraints.
Market players said the regulation was a "major move" in
alleviating the pressure that comes from having a lack of
investment options for mounting premiums.
"The addition of infrastructure projects into insurance
companies' investment portfolios will broaden their investment
scope, which will certainly raise their asset management
capability," said Sun Jianyong, director of the CIRC's Insurance
Fund Management Regulatory Department.
"In the past, insurance companies have mainly invested in
financial products; now they are able to put their money in fixed
assets," Sun said. "This will lead to a fundamental change in
insurance companies' asset allocation layout."
Infrastructure investments, which are usually long-term, are
seen as attractive investment options for insurers, especially life
insurers, because they better match liabilities with assets.
"The pilot rule broadens our (insurance companies) investment
channels, which helps us to spread and manage our investment
risks," said Sun Jingying from a research department under the
Investment Management Center, New China Life Insurance Co Ltd, one
of the leading life insurers in the country.
"At a time when returns from investing in bond markets and bank
deposits are becoming less and less and the stock market is
volatile, investing in infrastructure projects is a good option,"
said Andy Sun, deputy manager of investment department at Generali
China Life Insurance Co Ltd.
Currently, the bonds market and bank deposits are two major
investment destinations for insurance companies, accounting for a
combined 90 percent of insurers' total investments.
Insurers poured 742.4 billion yuan (US$92.3 billion) into the
bonds market (which includes the state treasury, corporate bonds,
financial bonds and subordinate bonds), and deposited 516.8 billion
yuan (US$64.3 billion) in banks, accounting for 57 percent and 37
percent of their total investment respectively, according to the
China Insurance Industry Development Bluebook (2004-05),
released by the CIRC yesterday.
However, "the opening-up of the new investment channel brings
with it its own set of risks," Sun Jianyong warned.
In order to curb these, insurance companies can only buy
investment products developed by professional investment
institutions such as trust companies and industry fund
companies.
Insurance companies' own insurance asset management arms are
also counted as professional investment institutions, Sun said.
Under the pilot rule, only qualified insurance companies will be
allowed to invest in infrastructure works.
Criteria such as corporate governance, internal risk management
and company ratings will be used to judge whether a company is
qualified or not for the new pilot investment scheme, Sun said.
According to the rule, insurance companies can only invest in
major state-level infrastructure projects and in areas such as
communications, transportation, energy, urban infrastructure and
environmental protection projects.
(China Daily March 21, 2006)