Chinese mainland authorities will throw open the door for insurers to invest overseas to expand investment channels for the industry.

 

The China Insurance Regulatory Commission is planning to launch a ruling within a month or two on insurers' overseas investment under the qualified domestic institutional investors scheme, said Sun Jianyong, director of the commission's insurance fund management.

 

The ruling will allow insurers to convert their own assets into foreign currency and invest in mature overseas markets, including Hong Kong, the United States and the United Kingdom.

 

It is a long-awaited move within the industry.

 

Under a draft ruling issued for consultation in December, insurers can invest up to 15 percent of their total assets in the previous year into overseas markets.

 

Mainland insurance assets topped 1.97 trillion yuan (US$257.5 billion) at the end of 2006, and a 15 percent upper limit can means insurers can invest up to 296 billion yuan into overseas markets.

 

Shenzhen-based Ping An Insurance (Group) Co said in March it has gained a license to run its assets management firm in Hong Kong as the group's overseas investment arm, paving the way for further overseas expansion.

 

The Hong Kong affiliate runs Ping An Insurance's overseas investment through portfolios, including stock, funds and bonds.

 

"The investment expansion will be welcomed by big players which have more capital," said an official with the investment department of a medium-sized joint venture life insurer in Shanghai.

 

"For small players like us, we will still focus on putting most capital into fixed-return products such as bonds."

 

The opening of the overseas market can help broaden insurers' investment options and siphon part of China's mounting foreign exchange reserves, which surpassed US$1.2 trillion at the end of March.

 

Chinese authorities are expanding insurers' investment channels from a previously limited option of low-return products like bonds or deposits into stock and infrastructure industries.

 

Derivatives

 

The new channels will also include derivative products such as convertible bonds, and assets-backed securities, the CIRC said in a draft ruling seeking public opinion in early June.

 

Insurers last year benefited from the booming mainland stock market.

 

Ping An Insurance, the country's second-biggest insurer, and China Life Insurance, the country's biggest insurer, have both reported rising profits boosted by returns from stock market investments.

 

China's insurance market is growing as the idea of seeking financial protection becomes popular in a nation where household savings top 2 trillion dollars. The government is also encouraging the development of the insurance sector to scrap its cradle-to-grave social protection system.

 

Insurers collected combined premiums of 564.1 billion yuan last year, up 14.4 percent from a year ago. Premiums are expected to top one trillion yuan by 2010, with total industry assets topping five trillion yuan in the same period.

 

"China's insurance industry is facing a good future with our booming economy," said Wu Dingfu, the head of the CIRC in June.

 

(Shanghai Daily June 18, 2007)