China's insurers face risk questions as regulatory changes loosen the rules

New regulatory changes are giving the mainland's life insurers more flexibility over investment decisions and product design but there are concerns they may not be ready to manage the additional risks.

Ping An Insurance in recent months purchased the Lloyds building in London for £260 million (HK$3.15 billion). The move followed a gradual relaxation of rules allowing firms to invest in a broader range of asset types domestically and internationally.

At the start of this month, the China Insurance Regulatory Commission said insurers would no longer be constrained by a statutory cap of 2.5 per cent on guaranteed annual return rates for policyholders, opening the door to more aggressive product design and marketing.

Both welcome steps for an industry that only originated in the 1990s, the changes will allow the country's 60-plus life insurers to offer more competitive policy pricing and rates of return and at the same time diversify their asset base and risk profile.

With more than 7.36 trillion yuan (HK$9.25 trillion) in total assets, according to data from property consultancy DTZ, the industry has become a pillar of the financial system, with extensive investments in the mainland's stock market, commercial real estate and infrastructure.

Its importance should only grow in the coming years as policyholder numbers increase and insurers broaden their investments in the Chinese economy. By comparison, United States life insurers last year had an estimated US$4.8 trillion in assets invested in the US economy, according to figures from the American Council of Life Insurers.

However, with new opportunities come new challenges.