Broader investment pipeline could raise insurers' returns

08:35, September 07, 2010      

Email | Print | Subscribe | Comments | Forum 

A broader investment pipeline for China's 4.5 trillion yuan ($661 billion) insurance industry could boost insurers' long-term investment returns, revitalize the commercial property market and benefit cash-strapped private companies, but the short-term impact will be limited, analysts said.

Chinese insurers are allowed to invest up to 5 percent of their total assets in private equity and related financial products and 10 percent in real estate and related financial products, according to detailed rules published by the China Insurance Regulatory Commission (CIRC) over the weekend.

"The launch of detailed rules, which set a clear practical guideline for insurers, is good news for the commercial sector, especially for the en-bloc sales market," said Grant Ji, director of the investment department of real estate service provider Savills (Beijing).

Though the revised insurance law, which took effect on Oct 1, 2009, has allowed insurers to invest into the real estate sector, the absence of detailed rules has caused insurers to postpone their property investment plans.

According to the detailed rules, insurers are prohibited from investing in commercial residential homes, participating in real estate development and establishing property companies.

Most insurers are interested in investing in office buildings, retirement communities and affordable housing.

"How fast insurers' influence grows depends on the market situation and the maturity of their investment teams. We are expecting a growing number of en-bloc deals in the commercial sector in the fourth quarter and the first half of 2011," Ji said.

Industry analysts estimated that new investment channels could increase insurers' long-term investment returns by 50 basis points to 5 percent annually.

But as the change has long been priced into insurers' share prices, the launch of detailed rules is unlikely to affect insurers' earnings or share prices.

Hao Yansu, an insurance professor at the Central University of Finance and Economics, said the regulator set a reasonable ceiling for these two types of investment, attaching priority to risk controls.

"While expanding the investment channels, the regulator also strengthened its supervision over insurers' solvency capacities to reduce relevant risks," he added.

For instance, only insurers whose solvency capacity is well above 150 percent and net assets are higher than 100 million yuan are allowed to invest in the real estate sector.

For those who intend to invest in private equity companies, the threshold for their net assets is 1 billion yuan.

"Though insurers may benefit from the expanded investment channels, the effect will not be felt immediately," said Hao.

Statistics from the CIRC show that the industry's assets totaled 4.5 trillion yuan at the end of the second quarter, indicating insurers may invest as much as 450 billion yuan in real estate and 220 billion yuan in private equity.

"But given insurers' demand for liquidity and the operational costs, a total of 30 to 40 percent of the permitted capital may invest in these two fields," said Hao.

Source: China Daily


  • Do you have anything to say?


Special Coverage
  • Premier Wen Jiabao visits Hungary, Britain, Germany
  • From drought to floods
Major headlines
Editor's Pick
  • Players of Iran throw up their coach Velasco Julio during the awarding ceremony at the 16th Asian Men's Volleyball Championship in Tehran, capital of Iran, Sept. 29, 2011. Iran won the champion after beating China 3-1 in the final on Thursday. (Xinhua/Ahmad Halabisaz)
  • Greek artists burn copies of emergency tax notices during a protest against austerity measures in Athens, Greece, on Sept. 29, 2011. The Greek government is facing a new wave of protests as it introduces new austerity measures to obtain the sixth tranche of aids necessary to overcome the acute debt crisis.(Xinhua/Marios Lolos)
  • A winner of the 36th Miss Bikini International 2011 poses for a photo at the Olympic Sailing Center in Qingdao, a coastal city of east China's Shandong Province, Sept. 29, 2011. (Xinhua/Chen Jianli)
  • Staff members are in position at Beijing Aerospace Control Center in Beijing, capital of China, Sept. 29, 2011. Commander-in-chief of China's manned space program Chang Wanquan announced Thursday night that the launch of Tiangong-1 space lab module was successful. (Xinhua/Rao Aimin)
  • Champion of Miss Bikini from Poland receives trophy at the final of the 36th Miss Bikini International World Competition in Qingdao, east China's Shandong Province, Sept. 28, 2011. (Xinhua Photo)
  • Photo taken on Sept. 28, 2011 shows autumn scenery of populus euphratica forests in Ejina Banner, north China's Inner Mongolia. The populus euphratica forests here, with an area of 390,000 mu, or 26,000 hectares, is one of the world's most famous populus euphratica forests. The golden leaves and sunshines here in autumn is able to attract more than 100,000 person-times annually. (Xinhua/Zhao Tingting)
Hot Forum Discussion