Ping An Insurance (Group) Company of China is likely to become the first Chinese insurer to enter overseas capital markets this year.

The Hong Kong-listed firm has sent an application to China's foreign exchange regulator for an investment quota, the only Chinese insurer to do so four months after the promulgation of rules that allow qualified insurers to invest in overseas markets.

The Shanghai Branch of American International Assurance Co Ltd (AIA), the largest foreign life insurer operating in China, has also sent an application for an investment quota.

"We are currently examining their applications," an official with the State Administration of Foreign Exchange (SAFE) told China Daily.

The official, who preferred to remain anonymous, did not give other details.

China enacted rules last August that allow qualified domestic insurers as well as foreign and Sino-foreign insurers operating in the country to invest in overseas markets, in a bid to help them improve investment yield.

An approval from SAFE is the final step the insurers need to clear the way for doing so.

Access to overseas markets has been long craved for by Chinese insurers, which have been, for years, restricted to areas of bank deposits, bonds and securities investment funds.

Louis Cheung, chief operating officer of Ping An, said late last year that access to overseas markets will boost his company's investment yield.

He said the new investment channel would give a lift not only to Ping An's investment returns last year, but "a much bigger" one this year.

Cheung had also expressed confidence that his company would have no problem winning regulatory approval. The SAFE official said the administration supports eligible insurance companies in investing their forex funds overseas.

According to August's regulations, Ping An is allowed to invest up to 80 percent of its total forex holdings in overseas markets. The company raised HK$14.3 billion yuan (US$1.8 billion) in an initial public offering last year in Hong Kong.

The regulations require the insurers to invest mostly in bonds with high credit ratings and relatively safe money market instruments. Stocks are forbidden.

In late October, domestic insurers were allowed to directly trade stocks in the domestic market. Before that, a considerable part of their assets were held in securities investment funds.

"Normally, the company will have higher returns in overseas markets, because the domestic stock market is quite bearish," said Tuo Guozhu, an insurance professor with the Capital University of Economics and Business.

The reasons that Ping An is in the first batch of domestic insurers to go abroad, he said, could include its relatively developed risk management mechanisms and the experience of its foreign shareholders, such as HSBC.

Ping An's total investment yield shrank to 3.6 percent in the first half of last year from 4.5 percent a year earlier, largely due to a downturn in China's equity market, according to its interim report.

AIA is the largest foreign life insurer in China. The US-based company garnered 2.5 billion yuan (US$301 million) in premiums during the first seven months of last year, representing a 1.26 market share, official statistics indicated.

About 10 insurers, out of a total of nearly 70 Chinese, foreign and joint-venture underwriters operating in China are currently qualified for investing overseas, the China Insurance Regulatory Commission has said.

According to the new regulation, insurers must have a minimum 5 billion yuan (US$600 million) in total assets and US$15 million in forex-denominated funds.

(China Daily January 4, 2005)