China Vanke

Insurance watchdog lowers equity investment ceilings

Threshold for individual total investments in equities cut to 30 from 40 per cent

PUBLISHED : Wednesday, 14 December, 2016, 5:11pm
UPDATED : Wednesday, 14 December, 2016, 10:50pm

China’s insurance regulator is cutting the maximum share of insurers’ investment portfolios in equities from 40 to 30 per cent, to rein in what has been seen as overly aggressive moves by some unlisted players into stocks, officials have revealed in an interview with state-owned media.

China Insurance Regulatory Commission will also launch a series of other measures to regulate frequent and aggressive share bidding by mainland insurers, for short term gain, Chen Wenhui, deputy chairman of CIRC told the state-owned newspaper People’s Daily.

The moves follow CIRC chairman Xiang Junbo’s comments in a speech on Tuesday, that insurers should be long-term investors rather than short-term speculators.

His comments marked the first time he had added his voice publicly to the debate, since the country’s securities regulator Liu Shiyu last week lambasted leveraged stock buyers as “robbers,” “barbarians” and “ghouls.”

CIRC only just raised the ceiling to 40 from 30 per cent in July last year, in an effort to encourage insurers to buy A-shares to shore up the tumbling stock market.

Another new condition is that insurers will not be allowed to invest more than 5 per cent of their total assets in a single stock, down from current limit of 10 per cent.

CIRC’s new policies on acquisitions and investment is to make sure insurers do not move too far away from their core business
Joyce Huang, analyst, Fitch Ratings

Chen said the current thresholds were probably still too high for prudent insurers, but had been abused by the most-aggressive investing insurers.

By the end of October, equity investment by insurers had reached 1.86 trillion yuan, which represented 14.42 per cent of the sector’s total portfolio, according to data from CIRC.

Evergrande Life, an arm of China Evergrande Group, and Baoneng Group-backed Foresea Life Insurance Co, in particular – both unlisted – have been snapping up shares in listed companies, including property developer China Vanke, glass manufacturer CSG Holding and appliance manufacturer Gree Electric Appliances.

Baoneng has spent more than 40 billion yuan to acquire 25.4 per cent of Vanke’s shares over the past year, making it the developer’s largest shareholder.

Those two alone now hold equity investments worth 57.4 billion yuan, or 3 per cent of the total capital invested in the stock market by all insurers, Chen said, adding the regulator had now sent “working teams to Evergrande Life and Foresea Life Insurance to examine their products and capital operation, he said.

Foresea was barred from selling life insurance products earlier this month, while Evergrande Life was banned from buying shares altogether.

Chen described the new equity limits as merely “squeezing the pimples”, and that they would have no material impact on the stability of the A-share market.

Insurers should invest for the long term, avoid speculative punts, Chinese regulator says

The new rules also forbid insurers from allying with non-insurance companies to acquire listed companies, or using clients’ insurance product investments for large equity investment. And insurers must also apply for approval from the CIRC before making any large equity investment.

Joyce Huang, an analyst at rating agency Fitch, said the tightened rules will return the insurance investment industry to what she called “rationality and health”.

“CIRC’s new policies on acquisitions and investment is to make sure insurers do not move too far away from their core business,” she said.

“The rules are only designed to counter the hostile acquirers, and will not be a heavy blow to the industry as a whole.”