Around 45 billion yuan (US$5.7 billion) in insurance capital could flood into China's banking sector after the nation's top insurance watchdog unveiled a package of investment rules Monday.

According to detailed rules issued by the China Insurance Regulatory Commission (CIRC) for insurers' equity investment in banks, insurance institutions could invest no more than 3 per cent of their total assets in State-owned commercial banks, joint-stock commercial banks and city commercial banks.

By the end of last year, the total assets of China's insurance sector had reached 1.5 trillion yuan (US$190 billion), implying that 45 billion yuan (US$5.7 billion) in insurance capital could be poured into China's banking sector this year.

"Equity investment in banks is just the first step, and we are considering regulations on investment in fixed-assets projects and State-owned enterprises," a CIRC official told reporters yesterday.

In guidelines published in late June, the regulator expressed its support for insurers' investment in banks, part of its efforts to boost insurers' investment returns.

"We support insurance companies buying into, or even taking controlling stakes in, well-managed, profitable banks that have a strong customer base," CIRC Chairman Wu Dingfu said earlier.

The regulation stipulated that insurers could use their registered capital and provisions over 10 years for the investment.

In terms of purpose and scale, insurers' investment in banks is divided into two types general and grand investment.

Those accounting for less than a 5 per cent stake in a bank are classified as general investment, while those greater than 5 per cent are regarded as grand investment. There are no upper ceilings for the investment.

If an insurer plans to make a grand investment, its total assets by the end of last year should be no less than 100 billion yuan (US$12.7 billion).

For any investment taking a 10 per cent stake or above, the insurer should have total assets in excess of 150 billion yuan (US$19 billion) by the end of last year.

Meanwhile, those target banks for general investment shall meet the following requirements a capital adequacy ratio of up to 8 per cent, a non-performing loans ratio lower than 5 per cent and a return on net assets of up to 12 per cent.

In fact, China's largest life insurers have been quite investors in banks.

In late July, Ping An Insurance (Group) Company became the controlling shareholder in Shenzhen City Commercial Bank after it bought an 89.24 per cent stake in the lender for 4.9 billion yuan (US$620 million).

According to Ping An Chief Operating Officer Louis Cheung, banking services will become one of the company's key businesses in the future, and the group is "open to any other opportunities."

Apart from the Shenzhen lender, Ping An has also been in talks with Beijing-based China Everbright Bank. Sources said the discussions are at a very early stage and it is uncertain whether they will result in an agreement.

Meanwhile, Ping An also joined a consortium led by French bank Societe Generale to bid for an 85 per cent stake in Guangdong Development Bank.

China Life, the country's largest life insurer, obtained a 1.75 per cent share in Fujian-based Industrial Bank through an auction in mid-August.

China's insurance premiums hit 493 billion yuan (US$62.4 billion) in 2005, ranking 11th in the world. The industry witnessed a 25 per cent annual increase from 2000 to 2005, the CIRC said.