Financial regulation

China to ban insurance asset managers from seeking guaranteed investment returns

Analysts say the new rules from the China Insurance Regulatory Commission may also be aimed at investments in public private partnerships

PUBLISHED : Friday, 05 January, 2018, 10:29pm
UPDATED : Saturday, 06 January, 2018, 7:01am

China’s insurance regulator has banned companies that manage assets on behalf of insurers from asking for guaranteed fixed returns on their investments in equities, in an attempt to trim the funding costs of businesses and help curb debt among local governments.

The China Insurance Regulatory Commission (CIRC) said in a notice on its website on Friday that asset managers would also be prohibited from asking investees, or relevant third parties, to pay back principal on investments.

The new regulation is in line with the stated policy of the CIRC to guide the insurance industry towards a more structured development, after a rise in risky investments raised concerns that insurers were straying from their purpose of protecting policyholders’ livelihoods.

Analysts also said that the new rules might also be aimed at better regulating investments in public private partnerships (PPP). PPPs are seen as a means of broadening the financing options available to local governments to fund infrastructure development, by introducing private investors.

However in practice some asset managers require fixed returns or implicit guarantees from local governments for PPP projects, meaning that local governments may end up accumulating implicit debts, posing a risk to financial stability.

“Insurance asset managers may take a more cautious stance when investing in PPP projects in future with the new measures in place,” said Wan Li, an insurance analyst at Bank of Communications International in Beijing.

“Still, PPP projects could remain on their investment radar as the long maturity of such projects and the prospect of stable returns matches insurance capital’s long-term investment needs.”

China to step up supervision of overseas investment risks, insurance regulator says

Also in the new rules, asset managers will be banned from acting as channels for other capital to disguise their investment flows, the CIRC said.

It also said it would prioritise approvals for asset managers to invest in major projects backed by the state.