Insurers could invest US$35.7b overseas

Around 282 billon yuan (US$35.7 billion) of China's insurance capital could flood into the overseas market after the regulator released a rule on insurers' overseas investment yesterday, its latest move to broaden investment channels.

The rule, which is open to public opinions from now 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 the overseas market should be no more than 15 per cent of its total assets last year.

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 is a piece of good news for us, but we will 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 will 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 did not mean the investment return from the overseas market 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.

China's stock market has seen a growth of over 100 per cent so far this year.

Experts said insurance companies' investment return this year could exceed 6 per cent due to the bullish market.

The new rule allows insurers to invest in four types of products overseas monetary market products, such as commercial bills and monetary funds; products with fixed return, such as bank deposits, bonds and trusts; equities, such as stocks and stakes; 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 matured foreign insurers invest less than 5 per cent into stocks."

The CIRC has launched a slew of policies to broaden the investment channels to insurers, such as allowing them to pour 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 is 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 per cent 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 cap 600 billion yuan (US$75.9 billion)."

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

Despite the skyrocketing 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; while the property insurance premium was US$15.8, compared with an international average of US$219.