Ping An Life Insurance Co, the country's second-largest life insurer, will spend 10 billion yuan (US$1.25 billion) on its first pilot infrastructure investment project, company management confirmed yesterday.

 

Under a new regulation announced in March, insurers can now indirectly invest up to 15 percent of their total assets in infrastructure projects.

 

According to the rule, insurance companies can only invest in major State-level infrastructure projects and in areas such as communications, transport, energy, urban infrastructure and environmental protection.

 

The rule is part of the regulator's efforts to expand insurers' investment channels to boost their returns and reduce reliance on bank interest.

 

The pilot infrastructure project, with a total investment of 12 billion yuan (US$1.5 billion) and led by Ping An and three other insurers, will be finished within the year.

 

China Life Insurance Co, PICC Property and Casualty Insurance Company and Taikang Life Insurance can invest a combined quota of 2 billion yuan (US$250 million).

 

"We are thinking about investment in highways, public utilities, power grids and real estate projects," Sheng Ruisheng, manager of the marketing department of Ping An, told China Daily. "However, the quota is really limited given the high cost of infrastructure projects. A single expressway would use up several billion yuan."

 

Infrastructure investments, which are usually long-term, are seen as attractive options for insurers, especially life insurers, because they better match liabilities with assets.

 

"Investing in infrastructure projects is a good option when returns from bond markets and bank deposits are shrinking and the stock market is volatile," said Andy Sun, deputy manager of the investment department at Generali China Life Insurance Co Ltd. "And we are waiting for the detailed regulation from the industry watchdog."

 

Industry statistics show that the average return for infrastructure investments hovers at around 6.2 percent. The investment return on expressways could be as high as 8 to 10 percent.

 

Meanwhile, the investments of insurers in Beijing and Shanghai railways are continuing smoothly, Wu Dingfu, chairman of the China Insurance Regulatory Commission, said in a recent seminar.

 

The Ministry of Railways would also like to raise around 70 billion yuan (US$8.75 billion) from insurers.

 

By the end of June, the assets of insurers totalled 1737.3 billion yuan (US$217.2 billion), an increase of 214.7 billion yuan (US$126.8 billion) compared with the beginning of this year. The average return on investment for insurers is 2.1 percent in the first months of this year, up 0.8 of a percentage point year-on-year.

 

(China Daily July 19, 2006)