Insurer trade restrictions lifted

China's insurance regulator announced Tuesday that it has allowed the country's insurers to trade stock index futures and other derivatives in the domestic market, a move to help them diversify investments and reduce risks.

The China Insurance Regulatory Commission (CIRC) has allowed insurers to trade index futures and other derivatives since October 12, the commission said Tuesday in a statement on its website.

But insurers should trade derivatives only to hedge against risks rather than for the sake of speculation, the statement said.

The move is the latest in a series of regulations released by the CIRC this year intended to help insurers diversify investments, analysts said.

"Insurers will be eager to trade index futures as it could help them make up for their losses in the sluggish stock market," Yang Guang, an analyst at Guoyuan Futures Co, told the Global Times Tuesday.

Chinese insurers had total assets of 6.9 trillion yuan ($1.1 trillion) by the end of September, according to the CIRC. They are allowed to invest up to 20 percent of their assets in stocks, and many of them have suffered from the poor performance of domestic stock markets this year.

For instance, China Life, the world's largest insurer by market value, warned Thursday that its net profit for the first three quarters of 2012 is likely to fall by 55 percent from the same period a year earlier, due to a decline in investment yield and higher impairment losses triggered by continued weakness in the capital markets.

The CIRC also published a new regulation for domestic insurers' overseas investments late Monday, allowing them to invest in 25 developed economies including Greece and Spain as well as 20 emerging economies such as Brazil and India. Previously, mainland insurers could only invest in Hong Kong.

Approved overseas investment products have also been expanded from stocks and bonds to currency products, fixed-income products and real estate. However, domestic insurers are still only allowed to invest a maximum of 15 percent of their assets overseas and the quota has not been increased, according to the CIRC.

A diversified portfolio of asset allocation will allow Chinese insurers to improve their profitability and diversify risks, ChinaVenture Investment Consulting Group said in a research note published Tuesday.

Foreign private equity (PE) funds will also benefit from the new regulation when they come to China for financing, ChinaVenture said.

The consultancy estimated that domestic insurers would invest $14.4 billion in overseas PE funds in 2012, and the amount will rise to $16.8 billion yuan in 2013.

"Chinese insurers will still be cautious in investing overseas, as they are not familiar with the foreign markets," said Luo Qi, an analyst at Shenzhen-based Ping An Securities.