China Regulator Loosens Investment Restrictions on Insurers

Feb 19, 2014 6:54 am ET

(Updates with details, earlier requirements from seventh paragraph.)

Feb. 19 (Bloomberg) -- 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.

Fewer Caps

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.

“Real estate category assets,” the new class subject to a 30 percent ceiling in today’s rules that didn’t provide comparisons with previous regulations, include real estate, infrastructure investment plans and related financial products. In a statement in July 2012, the CIRC, as the regulator is known, capped holdings in a similarly-worded category at 20 percent.

Liquid Assets

Wealth-management products, credit-backed securities, trusts and securities brokerages’ asset management plans, which are listed under “other financial assets” in the new rules, were limited to 30 percent of total assets in a CIRC statement in October 2012.

Insurers will be ordered to correct the ratios if they exceed the regulatory ceilings, according to today’s statement. Companies need to report to the regulator when liquid assets drop below 5 percent of total assets, or interbank borrowing and bond repurchases surpass a combined 20 percent of their assets, the CIRC 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