NewMainland insurers downbeat about prospects for investment yield in world of falling interest rates
PICC says total investment returns may fall below 5.5 per cent for 2016
China’s insurers are under mounting pressure to maintain their investment yields and at the same time avoid investment risk, as the turbulent financial markets and the low-rate environment make it more challenging for asset allocation, according to two mainland based insurers.
The People’s Insurance Company (Group) of China (PICC) and China Pacific Insurance Group reported upbeat growth in 2015 net profit on Monday, thanks to lucrative returns from China’s stock market in the first half year of 2015. However, concerns are growing that the situation is unsustainable, as senior executives concede it will be challenging to maintain high investment yields in 2016.
“The year of 2016 will be very difficult, as returns from the fixed-income products keep dropping remarkably, while we have to limit the exposure on the A-share market as it is still volatile and remains risky for insurers’ capital. We also need to prudently evaluate and manage the risks from a possible default on the bond market,” PICC general manager of the investment and finance management department Sheng Jin said.
“Our target for medium and long term investment return is above 5.5 per cent, while it seems challenging to reach this target this year given the current situation,” he said.
PICC recorded a 7.3 per cent investment yield in 2015, 1.3 percentage points higher from the previous year. Its investment allocation to stocks and equity funds reached 14.8 per cent of the total assets by the end of the year, up 4.8 percentage points from the beginning of 2015, while investment to fixed income products fell 5.5 percentage points, to 66.5 per cent by the end of 2015.
The People’s Bank of China (PBOC) has cut both interest rates and banks’ reserve requirements six times since November 2014.
The yield of the 10-year government bond and corporate bond of companies with high credit ratings have dropped to below 3 per cent, so “relying only on fixed-income investment can no longer cover the policy cost,” said Sheng.