Chinese insurance capital worth approximately 282 billon yuan (US$35.7 billion) could be destined for overseas markets after the regulator released a rule on insurers' overseas investment yesterday in its latest move to broaden investment channels.

The rule, which is open to public opinion until January 10, is part of the China Insurance Regulatory Commission's (CIRC) efforts to help insurers boost investment returns.

According to the rule the amount that an insurance company can invest in overseas markets should be no more than 15 percent of last year's total assets. .

As the total assets of China's insurance sector stood at 1.88 trillion yuan (US$238 billion) by the end of November around 282 billon yuan (US$35.7 billion) could be invested overseas next year.

"It's a piece of good news for us but we'll be very cautious in overseas investment," said a researcher with Skandia-BSAM Life Insurance Co., a Sino-Sweden joint venture specializing in long-term wealth management.

According to him understanding the overseas market would be the major challenge for domestic insurers. "The successful investment experience in the domestic market may not work in the overseas market," he added. "Hiring a local asset management company in that market will be a better choice."

But he said that didn't mean the investment return from overseas would be higher than the return from the domestic market. "Take China's stock market this year for an example--could you find a better market?" he asked. In fact China's stock market has seen a growth of over 100 percent so far this year.

Experts said insurance companies' investment return this year could exceed 6 percent because of the bullish market.

The new rule allows insurers four kinds of investment--commercial bills and monetary funds; products with a fixed return such as bank deposits, bonds and trusts; equities like stocks and shares and other products approved by the CIRC.

"There are no problems with the first two types of products but insurers should be particularly cautious with the third type," said Zhu Junsheng, a researcher with the Capital University of Economics and Business. "As far as I know even very mature foreign insurers invest less than 5 percent in stocks."

The CIRC has launched several policies to broaden investment channels for insurers such as allowing them to put money into infrastructure projects and buy stakes in banks.

"Our next emphasis will be on home mortgages," Gao Yan, deputy director of the capital management department of the CIRC, told China Daily while attending the second Sino-US Insurance Dialogue last month.

"It's a common practice for insurance companies to run house mortgage business through intermediaries," said Malone Ma, China chief representative of the MetLife Insurance Company. "But given the lack of home mortgage intermediaries in China insurers could probably do this business through banks."

CIRC statistics show that China's premiums topped 517.7 billion yuan (US$65.5 billion) by the end of November, an increase of 47.7 billion yuan (US$6 billion) on October. Premiums from the life insurance sector hit 379.8 billion yuan (US$48 billion), up 35.6 billion yuan (US$4.5 billion) month-on-month. The non-life insurance sector saw its premiums grow to 137.9 billion yuan (US$17.45 billion), a jump of 12 billion yuan (US$1.52 billion) on a monthly basis.

"China's insurance sector has entered a period of rapid expansion with a growth rate of about 20 percent expected in the following few years," Zhou Yanli, vice-chairman of the CIRC told a press conference in southwest China's Guizhou Province. "Premiums this year are expected to top 600 billion yuan (US$75.9 billion)."

China's insurance sector has seen an annual growth of 35 percent in the past five years, exceeding the financial sector's 15.8 percent annual growth and the country's annual economic growth of 8.8 percent.

Despite the rapid development of the industry China's per capita life insurance premiums stood at US$30.5 last year lagging far behind the international average of US$299.5. And the property insurance premium was US$15.8 compared with an international average of US$219.

(China Daily December 22, 2006)