Policy may spur State insurers' equity play

Stress on long-term focus set to boost market confidence, certain industries

China has revised its method of assessing the performance of State-owned commercial insurance companies, stressing more on long-term focus, according to a circular of the Ministry of Finance unveiled on Monday.

Experts said the move will encourage insurers to invest more on long-term equities, including stocks, which will eventually help boost the capital market and benefit industries with promising prospects.

The new assessment policy, which took effect on Wednesday, takes into consideration a State-owned commercial insurer's return on assets or ROA in both the past three years and the current year, to assess its ROA performance.

Yearly ROAs of the past three years and the current year's ROA will account for 50 percent each of the final ROA index.

The ministry recommended similar ROA assessments for private-sector insurers.

The move comes at a time when boosting capital market to support the real economy has become a common goal for China's financial policymakers, as the Chinese economy still faces some difficulties despite signs of accelerated recovery.

Following the Chinese authorities' strengthening measures to stabilize the stock market, the benchmark Shanghai Composite index closed marginally higher at 3,021.55 points on Monday.

Wang Guojun, a professor at the School of Insurance and Economics at the University of International Business and Economics, said the new policy is expected to effectively funnel more medium to long-term investments from insurers into the capital market, helping boost confidence of the market.

"The liabilities of insurers, or the source of their capital, are usually long-term, and from that point of view, the investments from insurers should go to long-term assets like stocks and other equities," Wang said.

"The policy adjustment can help achieve such a goal. The investments of insurers are expected to eye more long-term prospects and become more stable and balanced since they now face less restrictions, in terms of performance assessment," he said, adding sectors that have sound fundamentals or outlook, like software, chemicals and some property developers in first-tier cities, are mostly likely to benefit.

On Oct 23, Central Huijin Investment, an arm of China's sovereign wealth fund, announced that it had bought exchange-traded funds or ETFs and would keep increasing such holdings.

A week prior to that, it had increased its stake in the country's four biggest commercial banks and said it plans to further boost holdings in the banks in the coming six months.

In September, the National Financial Regulatory Administration rolled out measures that experts said would encourage insurance companies to invest in blue-chip and high-tech stocks. The measures lowered risk weighting for insurers' shareholdings of CSI 300 index members' stocks and stocks listed on the STAR Market of the Shanghai Stock Exchange, as well as their investments in public infrastructure securities through real estate investment trusts or REITs.

An analyst who sought anonymity said that amid the Chinese economy's strengthening recovery and the supportive efforts of the authorities, the country's stock market is a relatively safe choice for investors.

If insurers increase their holdings, the structure of the stock market in terms of investors will be improved, which will boost market confidence, the analyst said.