China / Insurers : new investment possibilities

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    China will now allow insurers to broaden investments into private equity and real estate, a move that could unleash as much as $100 billion worth of fresh funding into unlisted firms and the real-estate sector.

    Chinese insurers are allowed to invest up to 5 percent of their assets in private equity and 10 percent in real estate, according to rules published on the website of the China Insurance Regulatory Commission (CSRC) over the weekend. However, the rules limit insurers’ investment in private equity funds to 4 percent of total assets as well as in their investment in property-related financial products to 3 percent of assets. In addition, according to the rules, insurers are banned from investing in venture capital funds and residential properties, and must not directly participate in real estate development.

    China is broadening insurers’ investment options to help improve their returns and aims to channel more of the country’s savings into the private sector to help sustain economic growth. The move is seen boosting the investment incomes of Chinese insurance companies such as China Life and Ping An on the long run.

    Total assets at Chinese insurers stood at 4.5 trillion Yuan ($661 bn/ €512 bn/ £429 bn) at the end of the second quarter, meaning insurers may potentially invest more than 450 billion Yuan into real estate and 220 billion Yuan into private equity, tas reported by the official Shanghai Securities News. But the short-term impact on insurers’ earnings and share prices will be limited, as the new investments will be subject to close regulatory scrutiny, while the capital markets have been expecting the rule changes for years, analysts say.

    “It’s certainly good news for the insurance sector, and may push up insurers’ long-term investment returns by 50 basis points to 5 percent annually,” said Tong Chengdong, analyst at Guosen Securities Co in Shenzhen.