China's insurers will be restricted to 3 percent of their total assets in investments in unlisted commercial banks, the China Securities Journal reported on Thursday.

 

Insurance firms planning to invest in banks would also be required to reach certain standards in terms of corporate governance and risk control, the newspaper reported a "reliable source" as saying.

 

"Because the investment of insurance funds is quite new to the industry, the regulatory authority will continue to give guidance by setting the investment proportion," said Li Kemu, vice chairman of the China Insurance Regulatory Committee (CIRC).

 

The insurance industry's total assets reached 1.7 trillion yuan (US$212.5 billion) by the end of June.

 

The government has expanded the investment horizon by encouraging insurers to directly or indirectly invest in the capital market, a wider variety of securities products, real estate and venture capital on a trial basis and to purchase shares in commercial banks.

 

Li said insurers' portfolios needed to be improved, adding that insurance funds, which were typically stable and long-term, had long been invested in short-term projects.

 

Analysts said investment in unlisted commercial banks was expected to yield high earnings against a backdrop of stockholding banks and a few small and medium-sized banks entering the domestic stock markets.

 

The source said the insurance watchdog would set standards for the banks receiving insurers' investment in terms of management and performance levels and customer base in order to hedge the risks.

 

"The difficulty is that no proper investment products are within reach while insurance premium income has grown rapidly and 200 billion yuan of the quota is yet to be invested," said Sun Jianyong, head of CIRC investment department.

 

(Xinhua News Agency October 13, 2006)