Chinese insurance companies are now allowed to invest their cash in another place under new rules released yesterday.

 

The pilot regulation, drafted by the China Insurance Regulatory Commission (CIRC), will allow qualified insurance companies to make indirect investments in infrastructure projects, albeit with various restraints.

 

Market players said the regulation was a "major move" in alleviating the pressure that comes from having a lack of investment options for mounting premiums.

 

"The addition of infrastructure projects into insurance companies' investment portfolios will broaden their investment scope, which will certainly raise their asset management capability," said Sun Jianyong, director of the CIRC's Insurance Fund Management Regulatory Department.

 

"In the past, insurance companies have mainly invested in financial products; now they are able to put their money in fixed assets," Sun said. "This will lead to a fundamental change in insurance companies' asset allocation layout."

 

Infrastructure investments, which are usually long-term, are seen as attractive investment options for insurers, especially life insurers, because they better match liabilities with assets.

 

"The pilot rule broadens our (insurance companies) investment channels, which helps us to spread and manage our investment risks," said Sun Jingying from a research department under the Investment Management Center, New China Life Insurance Co Ltd, one of the leading life insurers in the country.

 

"At a time when returns from investing in bond markets and bank deposits are becoming less and less and the stock market is volatile, investing in infrastructure projects is a good option," said Andy Sun, deputy manager of investment department at Generali China Life Insurance Co Ltd.

 

Currently, the bonds market and bank deposits are two major investment destinations for insurance companies, accounting for a combined 90 percent of insurers' total investments.

 

Insurers poured 742.4 billion yuan (US$92.3 billion) into the bonds market (which includes the state treasury, corporate bonds, financial bonds and subordinate bonds), and deposited 516.8 billion yuan (US$64.3 billion) in banks, accounting for 57 percent and 37 percent of their total investment respectively, according to the China Insurance Industry Development Bluebook (2004-05), released by the CIRC yesterday.

 

However, "the opening-up of the new investment channel brings with it its own set of risks," Sun Jianyong warned.

 

In order to curb these, insurance companies can only buy investment products developed by professional investment institutions such as trust companies and industry fund companies.

 

Insurance companies' own insurance asset management arms are also counted as professional investment institutions, Sun said.

 

Under the pilot rule, only qualified insurance companies will be allowed to invest in infrastructure works.

 

Criteria such as corporate governance, internal risk management and company ratings will be used to judge whether a company is qualified or not for the new pilot investment scheme, Sun said.

 

According to the rule, insurance companies can only invest in major state-level infrastructure projects and in areas such as communications, transportation, energy, urban infrastructure and environmental protection projects.

 

(China Daily March 21, 2006)