China Life gets nod to expand portfolio

The China Insurance Regulatory Commission (CIRC), the country's top insurance regulator, has licensed New China Life Insurance Co to invest in private equity (PE) and real estate, the company announced Thursday, making it the latest insurer to benefit from the CIRC's ongoing efforts to diversify the investment vehicles open to the domestic insurance industry.

The CIRC initially stated that it would allow insurers to engage their capital in PE and real estate ventures on September 5, 2010. By August 2011, the commission had officially licensed China Life Insurance Company Limited as the first insurer to invest in these two asset classes. Ping An Insurance Company of China was the second insurer granted the same type of investment license one month later.

Over the past year, the CIRC has fast-tracked investment licensing approvals in response to pledges from financial authorities to expand the investment options available to insurers as the sector witnessed a surge in premiums and a drop in investment returns, Ruan Mingchu, a senior consultant from Cathay Life Insurance, told the Global Times.

"So far there are just under 10 Chinese insurers which have been cleared to invest in either PE or property, including China Pacific Insurance Co and Taikang Life Insurance Corp," Ruan said.

According to requirements from the CIRC, domestic insurers with solvency ratios over 150 percent can apply to invest in either of these two areas.

However, as mainland regulators give insurers freer rein with their investments, the more complicated portfolios held by these firms will expose the sector to a greater degree of risk, Xu Meifang, an insurance researcher from the Shanghai Academy of Social Sciences, told the Global Times.

"The risk management abilities of Chinese insurers are still underdeveloped and so they could be quite vulnerable to the poorly performing stock market or the sluggish housing sector as the country's economy remains depressed," Xu explained.

Supporting Xu's viewpoint, Fitch Ratings said in a report issued Thursday that Chinese insurers could find their financials endangered as a result of the CIRC's liberalization push.

"Chinese life insurers are more likely to tap into ... complex investments than non-life insurers, given their greater investment flexibility afforded by the longer tenor of life insurance reserves," the report stated. "They have also mainly relied on investment income for profit."