China Life Insurance Co Ltd, the nation's largest life insurer, plans to test the property market waters to diversify its investment portfolio, the company's Chairman Yang Chao said Thursday.

"China Life will seek investment opportunities in infrastructure, equity, fixed-income securities and the property market," Yang said.

According to Yang, the China Insurance Regulatory Commission is expected to allow insurers to invest in infrastructure and real estate soon and is working out the modalities in this regard.

"We expect the guidelines to come out soon. China Life will hire talent familiar with the real estate sector and we are doing the preparatory work in this regard," said Yang.

Industry analysts said it would be good for insurers to invest in the property market, as they can improve their profitability with more investment options.

The sharp fall in the capital markets due to the financial turmoil has put substantial pressure on insurers' investments. China Life saw its total investment return in 2008 falling 61.4 percent from a year earlier, while its net profit drop was about 45.3 percent.

China Life has increased its investments in fixed-income securities and term deposits to over 85 percent of its total investment, while the investment proportion on equities was down to 8 percent from 15 percent earlier.

"To alleviate the pressure on profitability, the insurers need to find long-term investment opportunities to get stable returns. The insurers' investments in the property market would most likely be in the commercial market rather than residential housing market," said Tao Zheng'ao, analyst, Donghai Securities.

According to Tao, insurers may also be allowed to invest in private equity funds and the soon to-be launched real estate investment trusts (REITs).

Based on international experience, the insurers' property investment may be capped at 5 percent of their total investment, industry experts said.

"It's the first time that Chinese insurers would be permitted to invest in the property market, so it's necessary to set a lower investment threshold to control risks. The investment on commercial property, equity and infrastructure could be all limited to within 5 percent of the total investment, with the investment return expected to be 8 percent, 15 percent and 6 percent respectively," said Wang Xiaogang, analyst, Orient Securities.

(China Daily March 27, 2009)