(Yicai Global) Oct. 20 -- A recent report has shed light on how China’s insurance funds have changed their asset allocations in the last five years to balance returns and risks against slowing economic growth and low interest rates.

They have shifted focus from cash and non-standard debt assets to fixed-income assets and other investments, according to the report, jointly released by the Insurance Asset Management Association of China and J.P. Asset Management.

The main factors behind the shift are a desire to improve portfolio yields, increase interest rate risk-matching of assets and liabilities, and optimize credit risk management, the report pointed out.

China’s insurance funds totaled CNY24.5 trillion (USD3.4 trillion) at the end of August, according to China Banking and Insurance Regulatory Commission data. As a share of that, bank deposits fell to 11.4 percent from 13.6 percent five years ago, bonds rose to 40.4 percent from 34.8 percent, while equities and securities were basically unchanged at 12.5 percent.

In the next one to two years, insurance funds will favor socially responsible investments, real estate investment trusts, private equity investments, fixed-income products and stakes in listed companies, according to the report, which was compiled after a survey of 29 executives at Chinese insurers.

Falling interest rates have made it increasingly difficult for insurance companies to cover the cost of liabilities from income generated by bank deposits, Su Gang, chief investment officer at China Pacific Insurance, pointed out during the second IAMAC Asset Management Development Forum last month.

In addition, the availability of high-quality fixed-income assets in the market is also very limited, making investment quite difficult, he noted. In this context, insurance funds favor real estate and infrastructure assets that can generate stable rents, while the low interest rate environment also enhances the long-term value of equities, Su said.

In the first half of this year, Chinese insurers invested almost CNY64 billion (USD8.9 billion) in equities, which is close to the level for the whole of 2020, he added.

Editors: Dou Shicong, Peter Thomas