(Yicai) July 11 -- China's finance ministry has adjusted the evaluation system for state-owned insurance companies, shifting to multi-year performance metrics, to encourage more long-term investment by insurance funds in the nation’s stock market.

The ministry recently issued new rules revising how two key metrics -- return on net assets and capital preservation and appreciation rate -- are assessed. For ROE, the evaluation will add a five-year cycle to the current year and three-year cycles, while for the other metric, it will include three- and five-year cycles in addition to the existing current year.

The weighting for the three- and five-year cycles is being raised to 50 percent and 20 percent, respectively, whereas the previous ROE weightings were split 50:50 between the current and three-year cycles.

“Long-cycle evaluation is a critical measure to enhance stability and enthusiasm for stock investments among different categories of funds,” Wang Lixin, general manager of Yinhua Fund, told Yicai.

It brings significant capital inflows to the market in the near term, while in the longer term markedly improving the structure of market funds, enhancing resilience and risk resistance, fostering a value-investment atmosphere, and reinforcing the positive momentum in mainland-listed stocks, he said.

Southern Asset Management told Yicai that the new rules will guide insurers toward more stable operations and long-term value investing, while encouraging them to invest in long-term growth companies.

It may also help to increase their involvement with listed companies through strategic investments, private placements and other methods, which will have a positive effect on the listed firms’ governance, the asset manager noted.

Analysis by Zhong Ou Asset Management suggests that given long payout cycles of insurance funds, the new policy could increase their tolerance for short-term asset swings and promote greater allocation to mainland shares and smooth market volatility. Meanwhile, the adjusted ROE assessment will guide insurers to focus on long-term value investing, improving market price discovery and the efficiency of resource allocation.

As of the end of last year, China's insurance funds had about CNY33 trillion (USD4.6 trillion) in investable assets, with only 11 percent actually invested in mainland shares, well below the 25 percent policy ceiling.

The new regulations also outline three requirements for state-owned insurers to enhance operational capabilities. They must improve asset-liability management, enhance investment management capabilities, and increase long-term stable returns by refining their medium-to-long-term assessment mechanisms and strengthening portfolio management.

Editor: Tom Litting