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Insurers to get more investment choices

By Wang Fei’er (Global Times)

09:07, July 19, 2012

China will broaden the scope and scale of investment products that insurers are allowed to hold positions in as part of market-oriented efforts to enhance their returns, Xiang Junbo, chairman of the China Insurance Regulatory Commission (CIRC), said at an industry conference Tuesday.

Specifically, insurers will be permitted to invest in domestic and overseas financial derivative products - such as stock index and treasury bond futures - and will also be allowed to invest up to 50 percent of their overall assets in unsecured corporate bonds, up from the previous limit of 20 percent, said Xiang, without offering a specific time frame.

When China first introduced regulations on the administration of insurance companies in 1985, insurers were only allowed to hold bank deposits, government debt and a handful of low-risk, low-return vehicles earmarked by the State Council. While regulators have slowly been offering insurers more access to domestic securities, the country's slowing economy and unruly stock market have cut into returns for these firms, many of whom have taken big positions in equities, said Gu Tao, a consultant from China Continent Property and Casualty Insurance Company.

On average, China's insurance companies saw investment returns of 3.6 percent last year, lower than most developed countries, Xiang told local media in January.

A recent drop in premiums has also heightened earnings concerns for insurers and intensified their urge to seek out higher returns among a more diverse selection of investment options, Zhong Ming, dean of the insurance department at Shanghai University of Finance and Economics, told the Global Times.

Overall premiums contracted by 1.38 percent year-on-year in 2011, reversing from an annual growth rate of 30.63 percent during the previous year, the CIRC reported in February.

However, of the more than 250 insurers in China, only 13 have established their own asset management units, which has led to a great deal of inefficient investment and capital use in the industry, said Zhong.

With more investment products opening to insurers, the industry will be exposed to complicated financial instruments, which will require a high degree of expertise to manage, Zhong warned. As the insurance regulator eases its control on the industry, it should establish a system to monitor insurers' returns in order to promote better risk management, said Zhong.

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