(Yicai) Oct. 30 -- China’s finance ministry said it will adjust the way it assesses the return on equity for state-owned commercial insurance firms, in the latest effort to guide more capital into the stock market.

According to a recent notice, the ministry has adjusted the ‘return on net assets,’ a performance measure for the operating efficiency of state-owned commercial insurers, switching from evaluation just of the current year to a combination of a three-year cycle and the return on net assets of the current year.

The notice said that insurance companies that fail to meet regulatory standards such as solvency are still not allowed to invest in stocks.

Regulators have been trying to boost investment by insurers in recent years, but with limited success. Even though highly solvent firms were given the go-ahead to invest up to 45 percent of their total assets in stocks and funds at the end of the last quarter, the proportion invested has not risen much. It has basically stabilized at between 10 percent and 15 percent since 2016, an industry insider told Yicai.

The person said that in recent years, as the yield on fixed income assets has been declining, there has been an urgent need for insurance firms to increase investment in equities. But due to the short assessment cycle, they have to lower the share going into equities to achieve sustained positive annual growth in return on net assets.

So the change in the assessment method will reduce the impact of short-term appraisals on investments by insurance funds, and enhance their enthusiasm for equity investment.

According to data from the National Administration of Financial Regulation, as of the end of August, China’s insurance funds reached CNY26.97 trillion (USD3.7 trillion), a 10.2 percent year-on-year gain, of which CNY3.49 trillion (USD480 billion) was invested in stocks and funds, up 13.8 percent from a year ago and accounting for 12.9 percent.

At present, there are eight state-owned insurers controlled by the Ministry of Finance or Central Huijin Investment, including PICC Property and Casualty and China Life Insurance. As of the end of 2022, the firms had a total of CNY9.37 trillion (USD1.28 trillion) in capital utilization, accounting for about 34.7 percent of the industry’s total utilization balance.

Editor: Tom Litting