New rules for insurers pave way for more liberalisation
China has issued new rules that allow insurers to set up asset-management companies, paving the way for further liberalisation in the way premium income is managed.
The rules, issued by the China Insurance Regulatory Commission (CIRC) yesterday and due to take effect on June 1, will allow domestic insurers to channel premium income through specialised firms designed to maximise returns on premium reserves. Asset managers are common in developed insurance markets.
Two China insurers, PICC Property and Casualty and China Life Insurance, have already set up asset managers under special dispensation from the State Council.
However, other insurers still manage their premium income through smaller internal investment divisions, which are having trouble coping with the enormous reserves of capital accrued by domestic insurers in recent years, according to the CIRC.
Funds under insurance company management stood at 873.9 billion yuan last year, up 51.4 per cent year on year.
Under the new rules, general insurers hoping to set up asset managers must have net assets of at least one billion yuan and total assets of more than five billion yuan, while life insurers must have at least 10 billion yuan worth of combined assets.
Once a life insurer sets up its asset manager, it must invest at least 80 per cent of its assets through the unit, while the minimum for non-life insurers will be 50 per cent.
Asset managers can be part-owned by entities other than the insurer, but domestic insurers must retain at least a 75 per cent stake.
The rules do not change existing restrictions on investing premium income, which must be mostly funnelled into bank deposits, treasury bonds and other largely low-yield investments approved by the State Council. Insurers can invest no more than 25 per cent of their capital in higher-return equities and selected corporate bonds.
'The rule is beneficial to the nurturing of a more specialised insurance sector,' the CIRC said in a statement posted on its website.