The central government of China will allow insurers to extend their investment channels into real estate and private equity, a move that could unleash up to US$100 billion worth of new funding into the property sector and unlisted companies.
According to rules published on the China Insurance Regulatory Commission (CIRC) website, Chinese insurers are allowed to invest as much as 10 percent of their total assets in real estate and 5 percent in private equity and other financial products.
A broader investment pipeline for the country’s 4.5 trillion yuan insurance industry could improve long-term investment returns for insurers, benefit cash-strapped private firms, as well as allow private equity companies to raise money in China in an easier way.
Analysts, however, said that the short-term effect on insurers’ profits and share prices will only be limited, since these new investments will be subject to regular scrutiny, while the capital markets have been waiting for the rule to change for several years.
“It’s certainly good news for the insurance sector, and may push up insurers’ long-term investment returns by 50 basis points to 5 percent annually,” said Tong Chengdong, analyst at Guosen Securities Co.
“But I don’t expect to see any big changes overnight, as it takes time to find good projects and the real estate sector is still subject to government curbs. Besides, the rule changes have long been priced into insurers’ share prices.”
Under the new rules, insurers can invest in unlisted financial firms and insurance-related businesses, which include medical, pension and car services.
The rules limit the indirect private equity investments of insurers at 4 percent of total assets and prevent them from investing in venture capital funds. While in real estate, insurance companies are also barred from investing in residential properties and from directly participating in property development. Property-related financial product investments are limited at 3 percent of total assets.