China Letting Insurers Buy More Stocks Is Unlikely to Benefit Markets, Analysts Say(Yicai Global) July 20 -- China has raised the asset-to-equity ratio for the country’s most solvent insurers by half, to try and tempt them to invest more cash in the capital markets. But analysts warn that it will be hard to change the sector’s cautious ways.
Insurers with a solvency ratio, a key measure of an enterprise’s ability to meet its debt and other obligations, of more than four and a half times can now invest up to 45 percent the value of their assets in different equity products from the previous limit of 30 percent, the China Banking and Insurance Regulatory Commission said on July 17.
The move, which is aimed at promoting the market-oriented use of insurance funds and improve the investor structure of the capital market, is unlikely to change the investment strategies of the insurance sector, an analyst told Yicai Global. Their allocation of equities such as company stocks, equity funds and private equity and other financial assets is usually low, he added.
"Although the upper limit has been lifted, insurers will not blindly enter the market,” said an executive at an insurance asset management company. Firms will look to see whether there is a suitable, high-quality target, and in the current market, this is hard to find, he added.
As of the end of the first quarter, Chinese insurance companies only invested a fifth of their total assets, amounting to CNY21.72 trillion (USD3.1 trillion), in equities, according to CBIRC data.
There are 37 insurers which qualify for the new investment cap, according to the Insurance Industry Association of China’s first quarter solvency report. Most of these are small and medium-sized firms and some are funded by foreign capital. Given their size, they are unlikely to bring significant incremental funds to the capital markets, the analyst said.
Most of the larger insurers, including China Life Insurance, CPIC Life Insurance, New China Life Insurance and the People's Insurance Company of China, only qualify for the minimum threshold of 30 percent.
Editors: Tang Shihua, Kim Taylor
