By Song Hongmei (chinadaily.com.cn)
Updated: 2008-03-14 15:07

CPPCC members have proposed that the insurance regulator further diversify investment channels for insurers, allowing them to invest in private equity, for example, in order to spread their risks.

Due to the already high valuation of A shares, insurance capital coming into the private sector can help dilute investment risks, China Life chairman Yang Chao said.

With more capital allowed into the capital market, CPPCC members from the insurance industry said Chinese insurers' investment returns saw an obvious increase, the National Business Daily reported. Chinese insurers enjoyed investment returns in 2007 totaling 279.2 billion yuan ($39.33 billion), more than in the previous five years combined.

Their investments amounted to 2.7 trillion yuan at the end of 2007, of which 43 percent was in bonds, 24 percent in bank deposits and 18 percent in equities. Up to 486 billion yuan was released into the domestic stock market.

Shanghai-listed China Life, the country's largest life insurer, reported a 50 percent-plus growth in net profits for 2007, largely driven by a booming stock market; Ping An reported 100 percent-plus growth and China Pacific 500 percent-plus growth.

"That last year's investment returns totaled more than the previous fives was by all means accidental, so we must be aware this could be a huge risk," said Wu Dingfu, chairman of the China Insurance Regulatory Commission.

High investment returns can hardly continue this year as markets are likely to slump more frequently than in 2007, said an analyst with Guotai Junan Securities.

Securities analysts reportedly estimate Chinese insurers have suffered badly, losing 41 billion yuan from their equity investments in January alone.

Chinese insurers should still stick to risk control, the first principle in making investments this year, said Wu, adding that the commission will also help insurers diversify their investments. "We will expand trials allowing insurers to invest in infrastructure and to take equity stakes," he said.

Currently, Chinese insurers are not allowed to put more than 20 percent of their assets into equities, and most must be in the form of stocks and funds.

"An insurance industry investment fund, led by several big insurers, could be set up to propel their investment into quality unlisted companies and infrastructure projects," said Yang in his proposal. Yang is seeking to quicken the approval and preparation processes for private equity investment by using fewer steps. Private equity investment periods usually range from 10 to 20 years, which perfectly match life insurers' capital, said Yang.

Yang's views was echoed by a professor at Fudan University. He said upon the launch of the second board market, insurers' investment in unlisted firms via private funds may help them get the sufficient development capital and meet the qualifications and standards of the market; meanwhile, the firms may bring insurers high yields when listed.

Chinese insurance companies have gained some experience in this regard. China Life, for instance, spent 35 billion yuan on a 32 percent stake in China Southern Power Grid and took part in the operation of Bohai Industrial Investment Fund, the first locally invested private fund in the country.

Ping An led other insurance companies to provide a joint investment of 16 billion yuan in the Beijing to Shanghai Express Railway project, becoming the second largest shareholder only after the Ministry of Railways.