Insurers get more freedom in asset allocation

The China Insurance Regulatory Commission said on Wednesday that it has loosened curbs on insurers' investments by scrapping ceilings on fixed-income holdings and simplifying rules to help the industry bolster returns.

The new regulations are effective immediately, the CIRC said.

Under updated classifications for asset categories and investment limits, insurers may put up to 30 percent of their total assets into equity, including publicly traded shares, equity funds and private equity.

Previously, the ceiling on equity investments was 20 percent, and that category didn't include private equity.

The regulatory mentality is to move toward market-driven supervision, Zeng Yujin, CIRC spokesman, told a news conference on Wednesday.

"We are confident that the incremental area where market vitality can be maximized and systemic risks prevented will continue to expand as insurance companies improve their internal risk controls," added Zeng.

The policy reform is aimed at establishing a dynamic, multilevel supervision system with differentiated approaches and monitoring networks, according to the CIRC.

The move is the latest by the regulator, which has moved in recent years to expand insurers' investment scope. The government aims to help insurance firms boost returns and better manage risks in the world's fourth-biggest insurance market.

A combined yield of 5 percent last year, the industry's best in four years, compares with levels of at least 6 percent and often 10 percent in alternative investments, according to Core Pacific-Yamaichi International Ltd.

The regulatory change "offers considerable room for insurers to invest, and we're certainly more optimistic now on their returns going forward", said Olive Xia, a Shanghai-based analyst at Core Pacific-Yamaichi.

"We're likely to see companies moving more assets from fixed income into higher-yield products such as trusts and property," she said.

Insurers' assets are now classified as liquid assets, fixed-income assets, equity assets, real estate assets and other financial assets.

The ceilings for real estate investment, alternative financial investment and overseas investment are 30 percent, 25 percent and 15 percent, respectively, of total assets.

There are no restrictions on investment in liquid and fixed-income assets under the new rules.

"The short-term effect of the investment relaxation is unclear as actual investments are far below the current limit" at present, said Fanny Chen, a financial analyst with Haitong International.

Chen added that Chinese insurers have so far put only about 7 percent of their assets into the equity market. Most of their investment goes into fixed-income assets.

"But the market-driven approach from the Chinese insurance regulator is more than clear. It is very welcome to insurers and will have a long-term effect," said Chen.

Chinese insurers' actual overseas investment is less than 1 percent of their total assets, according to Zeng. He said that this category of investment is expected to grow as more insurers take a global view of asset allocation.

"We will keep urging insurers to reinforce their internal risk controls at the same time," added Zeng.

Zeng said that the regulatory framework for insurers' investment in futures and government debt is under discussion.