China Life, the country's biggest life insurer, and Taikang Life have won approval from the State Administration of Foreign Exchange (SAFE) to invest overseas, an insider has disclosed.

 

This is the first time that insurers have been allowed to convert yuan funds into other currencies under the Qualified Domestic Institutional Investor (QDII) program.

 

The QDII scheme, which came into force in April, enables China's domestic insurers and banks to invest in overseas capital markets as part of efforts to manage the country's huge foreign reserves.

 

Ping An Insurance, the nation's No 2 life insurer, previously received approval to invest in overseas markets, but only by using its existing foreign currency-denominated funds.

 

China's foreign exchange reserves have soared in recent years due to its ever-increasing trade surplus and foreign investment inflows.

 

Reserves reached a record US$875.1 billion in the first quarter of this year.

 

Taikang, the country's fifth-biggest insurer, has already converted some of its funds and is preparing for overseas investments soon, Shanghai Securities News quoted an unidentified official at the China Insurance Regulatory Commission (CIRC) as saying.

 

Each firm will be given a quota of how much money it can convert.

 

"The quota will not be low," Hao Yansu, an insurance professor with the Central University of Finance and Economics, told China Daily.

 

The regulatory authority wants to keep a tight rein on how much can be invested to prevent potential risks.

 

However, if the quota is too low, insurance companies will not want to bother investing, Hao explained.

 

"I estimate that the quota will range from 10 percent to 20 percent of insurers' assets," he added.

 

H shares on the Hong Kong bourse will be the main target for insurers, who understand the corporate governance standards and performance of companies listed there.

 

"State-owned enterprises, such as Bank of China, will be very popular," Hao said.

 

Chinese insurers, which have more than quadrupled their assets in the past five years to 1.6 trillion yuan (US$200 billion), have long been hampered by a lack of investment opportunities at home.

 

They are restricted to putting their money into bank deposits, government and corporate bonds, or mutual funds and stocks.

 

Statistics from the CIRC show that the bonds market and bank deposits are two major investment destinations for insurance companies, accounting for a combined 90 percent of insurers' total investments.

 

To improve this situation, the regulatory authority has been trying to expand investment channels.

 

The CIRC released detailed pilot regulations on how insurers should manage overseas investments last September.

 

The rules enabled them to invest a maximum of 10 percent of their existing foreign exchange capital in overseas stock markets, structural deposits, mortgage securities and monetary funds.

 

In March, the CIRC allowed insurers to invest no more than 15 percent of their total assets in infrastructure projects.

 

The country's third-largest insurer, China Pacific Life Insurance, was the first firm allowed to invest in this way.

 

(China Daily June 2, 2006)