Chinese insurers reported healthy returns on investments in the first quarter, but an industry analyst says they still have great room to improve in terms of investment innovation and risk control.

Tuesday figures from the China Insurance Regulatory Commission (CIRC) revealed the return on investment of Chinese insurers rose 40.55 percent from a year earlier to 43.3 billion yuan (6.34 billion U.S. dollars).

"The upbeat stock market performance was the largest driver for the surge in investment returns," Zhang Yunpeng, an industry analyst with Beijing-based Huarong Securities, told Xinhua Wednesday.

The benchmark Shanghai Composite Index gained more than 28.3 percent in the first quarter, while it plunged 34 percent in the same period last year.

The main channels for insurers' investment are government bonds, financial bonds and bank deposits.

The insurers' bank deposits rose 23.7 percent from last quarter to 1.0004 trillion yuan by the end of March, while their combined bonds investment fell 3.9 percent to 1.699 trillion yuan, CIRC figures showed.

Meanwhile, domestic insurers increased their stock market investment by 19 percent from last quarter to 288.6 billion yuan.

Zhang said investment returns on bonds and bank deposits were relatively fixed compared to the earnings from the stock market, adding that the stock market trend would be an important factor influencing insurers' investment earnings for the whole year.

However, the industry's top regulator Wu Dingfu pointed out the investment capabilities of Chinese insurers were still "weak".

"Their global peers have a wider array of investment options and more experience in assets management and risk control, than Chinese insurers," Zhang said, citing China's second largest insurer Ping An Insurance's investment in troubled Fortis as an example.

He said the government had stepped up efforts to broaden investment channels for domestic insurers and keep a close eye on potential risks involved in the new investments.

Wu, chairman of the CIRC, at an industry conference Monday urged insurers, who were enjoying more freedom in investment, to step up risk control.

Smaller insurers this month had been granted the right to directly investing in the stock market.

Although no clear standards exist to assess the size of Chinese insurers, the market leaders are China Life, Ping An, China Pacific Insurance, New China Life, Taikang Life and China Reinsurance.

Wang Xiaogang, an industry analyst with Shanghai-based Orient Securities, predicted total assets of smaller insurers reached 500 billion yuan. If 5 percent of their assets were pooled in the stock market, it would have an obvious stimulus effect on the stock market and capital-hungry companies.

With the annual premium income surging 39.1 percent to 978.4 billion yuan last year and sluggish performance in the stock market, domestic insurers faced an investment earnings downturn.

No investment earnings figure for the whole industry is available, but returns of the country's top life insurer China Life declined 63.7 percent to 30.68 billion yuan last year.

Industry insiders believe insurers focus on long-term investment opportunities with reasonable and steady earnings, and China should give better play to insurers investing in long-term projects. This could also raise the capital use efficiency.

Chinese life insurers are allowed to invest up to 6 percent of their total assets on infrastructure projects, while property insurance companies could invest up to 4 percent of their total assets, according to a CIRC regulation issued on April 7.

Late last year, China allowed insurers to invest in infrastructure, such as transport, telecoms and energy facilities, as well as rural infrastructure projects. This measure aimed to increase financing for the country's 4-trillion-yuan economic stimulus package.

Zhou Guang, a senior industry analyst with the China International Capital Corp., Ltd., predicted that the country might relax regulations on insurers' equity investment in unlisted companies and the property market this year, which might provide further profit growth momentum in the long run.

Total assets of Chinese insurers topped 3.5 trillion yuan by the end of March, up 6 percent from the end of last year. Premium income rose 10 percent in the first quarter year on year, to 327.67 billion yuan.

(Xinhua News Agency April 22, 2009)