Insurance firms make 8.92b yuan from stocks
Industry's total investment in booming equities market yields return of 27.1pc
China's insurance industry realised total gains of 8.92 billion yuan from investing in the domestic stock market last year, almost 10 per cent of insurers' investment earnings, state media reported.
Their realised rate of return on stocks was 27.1 per cent, more than four times higher than their total realised investment return of 5.8 per cent on earnings of 93.22 billion yuan.
Insurers have been allowed to invest in the stock market only since February 2005. Their stock holdings must not exceed 5 per cent of their assets.
The industry's 5.8 per cent overall return last year compared with 3.6 per cent in 2005 and 2.9 per cent in 2004.
When unrealised gains are factored in, the insurance companies' stock purchases produced a profit of 50.86 billion yuan, or a return of 181.54 per cent, the Securities Times quoted Sun Jianyong, head of the insurance fund management regulatory department at the China Insurance Regulatory Commission, as saying at an investment conference.
Insurers could not have made their stock market investing debut at a better time. Shanghai's benchmark A-share index was the world's best-performing major index last year, recording a 130.57 per cent gain after wallowing in the red for most of the previous five years.
Investors took heart from the apparent ease with which the government implemented its share reform programme, converting illiquid state-owned shares of dozens of companies into freely tradable shares.
And following the resumption of initial public offerings in May last year after a pause designed to bring share supply and demand into balance, investors dissatisfied with the low rates on bank deposits emerged to chase offerings by blue chips such as Bank of China and Industrial and Commercial Bank of China.
The strong performance of the markets has increased calls to ease the cap on stock investments of 5 per cent of insurers' assets.
The China Insurance Regulatory Commission is considering letting insurers invest up to 10 per cent of their assets, as of the end of the previous financial year, in stocks, the Shanghai Securities News reported on Friday.
Mr Sun was quoted as saying the regulator might also consider starting a pilot scheme for insurers to invest in asset-backed securities where investors typically receive income streams from property projects or corporate cash flows.
'The asset allocation of insurers should be adjusted, bank deposits should go down further,' the official said. 'Insurers' investments in the stock market should be supported to realise asset diversification.'
Some analysts said that raising the stock investment threshold, after a rise that some considered irrational and overdone, would increase risks of losses. But others thought the risks were mitigated by the insurance companies' long investment horizon.
'Insurers tend to hold on to their shares for a long time,' said Ivan Chung, an analyst who formerly worked for a mainland credit rating agency. 'In fact, greater participation by insurers will help stabilise the market since the retail investors' prominence will be diluted.'