Chinese insurers to invest more in equities

At the end of the first quarter, insurers had RMB4.38 trillion ($628 billion) deployed in equities, according to the China Banking & Insurance Regulatory Commission (CBIRC), which announced the rule change. This equates to 22.6% of overall portfolios

Permission to increase exposure will be granted based on individual capital adequacy ratios and risk profiles. For example, large players such as China Life Insurance and China Pacific Insurance will see their allocations rise from 30% to 35%. The regulator said that taking a differentiated approach to supervision would give insurers more room to develop independent investment strategies.

Shiduo Xu, a Beijing-based partner at law firm Zhong Lun, told AVCJ that the change will significantly enlarge the pool of capital available to private equity investors. With more money flowing into public equities as well, GPs exiting positions via the secondary market also stand to benefit. 

But Liyong Zhou, a general manager in the VC unit of Shanghai STVC Group, one of China’s earliest state-backed LPs in venture funds, struck a cautionary tone. While the liberalization is likely to see more participation by insurers in private equity, he warned there might be additional restrictions on alternative investments.

"At least several hundred billion yuan will be released for equity investment because of this new regulation. PE investors favor insurers as a stable, long-term source of capital. However, the CBIRC may introduce specific requirements for alternative investments at a later date," Zhou said. "At the same time, individual insurers may set up management companies to make their own alternative investments." 

According to the CBIRC's website, insurers with a liability reserve coverage ratio of less than 100% and those that have experienced major risk events in the past can invest no more than 15% of their assets in equities. There is also a preexisting regulation that prohibits insurers from owning more than 10% of a public company.

The equities portfolios of Chinese insurers featured RMB1.95 trillion in long-term equity investments at the end of the first quarter. These are typically defined as substantial holdings that give the investor significant influence over the target. Private equity investments are said to fall into this category.

In addition, insurers had RMB1.54 trillion in general stocks and RMB554 billion in public equity funds.

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• Topics
• Greater China
• Regulation
• China
• China Banking & Insurance Regulatory Commission