China Relaxes Investment Rules for Insurance Companies

February 19, 2014

China’s insurance regulator loosened curbs on insurers’ investments, scrapping ceilings on fixed- income holdings and simplifying rules to help the industry bolster returns.

The China Insurance Regulatory Commission categorized insurers’ portfolios into five classes. It capped investments in equities and real estate each at 30 percent of total assets and limited “other financial assets,” which include banks’ wealth management products and trusts, to 25 percent, the CIRC said in a statement on its website.

The new rules add to the regulator’s moves in the past few years to expand insurers’ investment scopes as the government seeks to help companies boost returns and better manage risks in the world’s fourth-biggest insurance market. A combined yield of 5 percent last year, the industry’s best in four years, compares to levels of at least 6 percent and often times 10 percent in alternative investments, according to Core Pacific-Yamaichi International Ltd.

“That gives considerable room for insurers to invest and we’re certainly more optimistic now on their returns going forward,” said Olive Xia, a Shanghai-based analyst at Core Pacific-Yamaichi. “We’re likely to see companies moving more assets from fixed income into higher-yield products like trusts and property.”

No ceilings are imposed on fixed-income or “liquidity assets,” such as cash, demand deposits and government debt with maturities shorter than one year, according to the statement.

Restrictions on specific products were removed as the regulator slashed the number of caps to about 10 from more than 50 previously. Some broad limits were maintained to prevent systemic risks, the regulator said.

Limiting investments in alternative assets has left insurers vulnerable to volatility in the stock market. China Life Insurance Co., the nation’s biggest insurer, said last month that its profit may rise about 120 percent in 2013, trailing the 164 percent jump analysts predicted due to the low base in the preceding year. It wrote off 31.1 billion yuan ($5.1 billion) in 2012 to absorb declines in its equity holdings.

–Zhang Dingmin. Editors: Andreea Papuc, Tomoko Yamazaki