China Insurance Regulatory Commission (CIRC), the industry watchdog, yesterday released a detailed pilot regulation to manage overseas investment of insurance companies' foreign exchanges.

"With a wide coverage and detailed rules, the pilot regulation is a compass for insurance companies to go abroad," Long Xiangxin, manager of the capital management center of New Life China Insurance Co, told China Daily.

With 30 percent annual growth in the past two decades, China's insurance industry has maintained a strong growing momentum, as has the insurance foreign exchange business.

Moreover, with the listing of China Life Insurance Co, PICC Property and Casualty Co and Ping An Insurance Co, foreign exchanges from the insurance sector have topped US$10 billion, mainly coming from the capitalization of joint ventures, foreign-funded insurance companies and the raised capital from three listed insurance companies.

"The regulation clarifies the expanded investment channel and tools, a big help for insurers," Wang Guojun, an insurance professor at the University of International Business and Economics (UIBE), said.

According to the regulation, insurance companies can invest their foreign exchanges into overseas stock markets, structural deposits, mortgage securities and monetary funds.

However, the overseas stock investment is only confined to Chinese enterprises listed in securities exchanges in New York, London, Frankfurt, Tokyo, Singapore and Hong Kong.

In that case, H-shares, especially red chips, will be the primary choice for investment, insiders say.

"The comparatively low valuation of H-shares also make them safer," Wang says

According to Zeng Yujin, an official at the CIRC, overseas investments also have no influence on the domestic stock market,

"Because the yuan cannot be exchanged into foreign currencies under a capital account, there shouldn't be any concern that capital will be withdrawn from the domestic stock market," Zeng adds. " The only influence would be psychological."

The regulation also sets an investment cap to control potential risks.

The total amount of foreign exchange that can be invested in overseas stock markets should be under 10 percent of the investment quota set by the State Administration of Foreign Exchange. Investment in a single stock is to be no more than 5 percent of the total release of that stock.

Meanwhile, the CIRC encourages insurers to invest in developed countries and regions by expanding the allocating currencies to US dollar, euro, yen, pound, Canadian dollar, Australian dollar, Singapore dollar, Hong Kong dollar and other currencies approved by the watchdog, essentially the same as the basket of currencies.

(China Daily September 12, 2005)