(Yicai) May 7 -- China's latest relaxation of the equity risk factor for insurance companies is expected to inject more than CNY130 billion (USD18 billion) into the capital market, according to an analyst.

“We estimate that a 10 percent reduction in the risk factor for CSI 300 stocks held by insurance funds will release about CNY36.4 billion (USD5 billion) in capital for insurers,” Ge Yuxiang, chief analyst for non-bank finance at Zhongtai Securities, said to Yicai. “If all of this is used to increase allocations in CSI 300 constituent stocks, the resulting inflow into the stock market could reach CNY134.9 billion.”

The CSI 300 Index tracks the performance of the 300 largest and most liquid A-shares traded on the Shanghai and Shenzhen stock exchanges.

Alongside reductions in policy rates and the reserve requirement ratio, Chinese regulators today announced a 10 percent cut in the stock investment risk factor — a regulatory metric that limits insurers’ equity allocations to ensure financial solvency — as part of broader efforts to boost market liquidity.

The previous adjustment to the risk factor took place in September 2023, when the National Financial Regulatory Administration lowered it to 0.3 from 0.35 for CSI 300 constituent stocks, and to 0.4 from 0.45 for shares listed on the Star Market, a segment targeting high-tech firms.

Responding to the economic impact of recent US tariff hikes, China’s three main financial regulators — the People’s Bank of China, the NFRA, and the China Securities Regulatory Commission — jointly rolled out a set of policies today aimed at stabilizing financial markets. These include a 0.5 percentage point cut to the RRR and a 0.1 percentage point reduction in the interest rate on seven-day reverse repos.

Following the previous rule changes, Chinese insurers have increased their equity exposure. As of December last year, the book value of life insurers’ stock investments reached CNY2.3 trillion (USD318 billion), up 28 percent year on year and accounting for nearly 8 percent of their total funds. Property and casualty insurers’ stock holdings also rose 28 percent to CNY160.1 billion, comprising more than 7 percent of their total.

To further support long-term capital inflows into equities, the NFRA raised the upper limit on equity assets for insurers last month. For companies with strong solvency positions, the cap was increased to 50 percent of total assets from the previous 45 percent.

Editors: Dou Shicong, Emmi Laine