Beijing has given the 130 insurers on the mainland wider access to domestic and overseas securities, part of a bold step to encourage high-yield investments amid a stock market downturn this year. The China Insurance Regulatory Commission announced in a circular yesterday that insurers could invest up to 25 per cent of their assets in mainland-listed A shares and domestic securities funds, up from the previous cap of 20 per cent. According to the new rules, insurers with total assets of 4.3 trillion yuan (HK$4.92 trillion) are also allowed to allocate as much as 15 per cent to overseas bonds and equities, a huge increase from the amount they can invest now. Mainland insurers could now invest 5 to 10 per cent of their assets in overseas stocks, securities funds and bonds based on their solvency. The new rules followed on the heels of a CIRC statement last week that raised the investment cap for insurers' purchase of infrastructure debts and properties. 'It is a drastic move to expand insurers' investment channels other than banking deposits and fixed-income products,' said Huatai Securities analyst Liu Peng. 'The rules were obviously designed for them to chase high returns coupled with high risks.' Mainland insurers have been facing mounting pressure to diversify investments as the majority of their assets are allocated to fixed-income products. Soaring premium income, which jumped an annualised 33.6 per cent or 800 billion yuan, in the first half this year has prompted the regulator to revise investment rules. The CIRC had been cautious on increasing the cap for high-risk products for decades, giving priority to security of the insurance assets. But the increased investment options could be a double-edge sword for the nation's insurance sector after the A-share index slumped 21.4 per cent this year. In Hong Kong, the main overseas destination for equity buying by mainland insurers, the Hang Seng Index fell 3.5 per cent this year. 'Don't expect the new policies to bring a sea change to the insurance sector or the securities market,' said Guotai Junan Securities analyst Peng Yulong. 'It's still up to the insurers' risk appetite though the recent liberalisations look aggressive.' Though there is no public record of insurers' exposure to local stocks and mutual funds, analysts estimated the equity and fund investments accounted for about 10 per cent of their total assets now. Insurers have been shying away from the volatile mainland market this year, continuing to pare A-share holdings amid expectations of a further drop. News of the liberalisation failed to give a lift to the benchmark Shanghai Composite Index, which lost 1.23 per cent yesterday to close at 2,575.48 points. Under the new rules, insurers can invest a maximum 20 per cent of their assets into mainland stocks and stock-focused funds while the remaining 5 per cent should be slated for low-yield bond and currency funds. The CIRC also allows insurers to invest in unsecured bonds with at least an AA rating, setting a 20 per cent ceiling of each insurer's assets. The CIRC published a statement last week that allowed insurers to invest as much as 10 per cent in debts related to infrastructure. The new ceiling was raised from 6 per cent for life insurers and 4 per cent for property insurers. The regulator also let insurers spend a maximum 5 per cent to buy stakes of unlisted companies.
