Insurers' investment to boost infrastructure projects as rules loosen

08:26, July 30, 2010      

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The insurance regulator might loosen the restrictions for insurers to invest in infrastructure projects, which could diversify the insurers' portfolios and give more funds to support public works.

The China Insurance Regulatory Commission (CIRC) will discuss to lower the threshold for insurers to invest in infrastructure projects soon, according to China Securities News (CSN) Thursday.

The number of provincial projects under construction could be lifted, and the investment cap could be lifted if the move is made, CSN reported.

The CIRC issued guidelines last April for insurance companies investing in infrastructure projects and stated that the investment can't exceed 6 percent of life insurer's total assets and 4 percent of property insurer's assets of previous quarter.

Insurance companies have accumulated a large amount of cash over the past few years and are now facing greater pressure to manage their portfolios.

"About 20 to 30 percent of insurer's assets on average are bank deposits, and insurers lack long-term investment assets," said Xu Liping, insurance sector analyst with China Galaxy Securities.

Less strict regulations might boost insurer's investment in infrastructure, which will benefit the insurer's portfolio management and cut local governments' reliance on bank loans.

"Insurer's capital may also finance the development of much needed public works projects such as affordable houses," Xu said.

Insurance funds and annuity are expected to invest in the construction and operations of affordable housing projects in Shanghai, according to remarks made by the municipality's mayor two weeks ago.

Due to relatively low returns, private capital is reluctant to invest in affordable housing projects, but it won't be a problem for insurers.

The long-term returns on infrastructure projects is not as high as returns from the stock market, Xu said, adding that the infrastructure investment will not have major impact on the financial performance of the insurance companies.

Infrastructure investment is not risk free. The Shenzhen metro is calculated to lose about 22 billion yuan ($3.25 billion) between 2012 and 2016, and the Beijing subway bleeds over 1 billion yuan ($147.55 million) per year.

By Wang Xinyuan

Source: Global Times


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