Insurers rise after hike in equity caps

Share prices of leading insurance companies rose on Monday after China raised the equity investment cap for insurers to 45 percent of their total assets from 30 percent, to provide more long-term funds to the real economy and capital markets.

In the A-share market, China Life Insurance Co Ltd rose by 9.99 percent to 37.97 yuan ($5.43) per share, and Ping An Insurance (Group) Co of China Ltd by 6.13 percent to 82.8 yuan per share.

The China Banking and Insurance Regulatory Commission said on Friday that it will set different requirements for different insurers on how much insurers can invest in equity assets.

For example, for an insurer whose comprehensive solvency adequacy ratio was above 350 percent at the end of the previous quarter, the outstanding balance of its investments in equity assets should not go beyond 45 percent of its total assets at the end of the previous quarter.

For an insurer whose comprehensive solvency adequacy ratio was lower than 100 percent at the end of the previous quarter, however, the outstanding balance of its investments in equity assets should not surpass 10 percent of its total assets at the end of the previous quarter, and the insurer should immediately stop making new investments in equity assets.

Data from the CBIRC shows that the average comprehensive solvency adequacy ratio of insurers included in the deliberation of a regulatory meeting was 244.6 percent at the end of the first quarter.

"We will implement differentiated regulation on insurers' equity asset allocation under the premise that risks will be controlled effectively. By supporting those insurers with an adequate level of solvency capacity, good financial conditions and strong risk tolerance to moderately increase the proportion of their equity asset allocation, we will give full play to the advantages of insurers to provide long-term, stable funds to the real economy and capital markets," said a regulatory official in a post on the CBIRC's website on Friday.

"Every time regulatory authorities relax regulations on the proportion of an insurer's investments in equity assets to its total assets, the move will bring tremendous returns to the insurance sector, especially leading insurers, and promote rapid development of capital markets," said Wang Guojun, a finance professor at the University of International Business and Economics in Beijing.

"The regulator's objectives for making this move are very clear－to provide funds for capital markets, promote the development of capital markets and increase insurance companies' return on investment."

Another goal of the regulator is to push ahead with a reform on classified regulation of the insurance sector by further clarifying which insurers are allowed to do which things, Wang said.

"The revisions to regulations will help insurers improve their comprehensive solvency adequacy ratios, risk conditions, and asset and liability management capacity. Granting looser policies to the insurers whose performance indicators are better will incentivize them to move forward in a better direction," he said.

In his view, it is a good time for insurance companies to invest in the capital markets now.

However, it is hard to say how much money insurance companies will inject into capital markets in the short run because the companies have to go through a series of internal procedures and sell other types of assets they hold before making large investments. More importantly, their senior management team must reach a consensus on the forecast that capital markets are surging, he said.

"More money will flow from insurers, especially quality insurers whose relevant performance indicators meet regulatory requirements, into capital markets if the insurers have a bullish attitude toward the development of capital markets," he said.