BEIJING (Reuters) – China’s cabinet has given approval for insurers to buy equity in private firms in an effort to widen their investment channels, the industry regulator said on Friday.
“The State Council recently gave its permission for insurance firms to invest in equity stakes of non-listed companies, and the China Insurance Regulatory Commission is working on relevant rules for a trial scheme,” Yuan Li, the CIRC’s assistant chairman, told reporters.
He declined to say how much of their assets insurers would be allowed to invest in private equity.
A pilot programme would start with big insurers that are able to mitigate associated risks, with the regulator providing guidance on which industries they should invest in, Yuan said.
He did not say when the trial would start.
To jump-start private equity investment and widen funding channels for domestic firms, China has permitted securities houses, local governments and the national pension fund to set up special arms or entrust money to existing private equity funds.
Yuan said his agency would not restrict Chinese insurers from investing overseas despite the global financial crisis, but it would aim to make sure they did so prudently.
“Overseas investment by insurers is in line with the country’s going-abroad strategy,” he said.
However, the CIRC has stepped up checks of insurers’ foreign investments and ordered joint ventures to report on the financial condition of their foreign partners.
The agency took the step after Ping An Insurance (Group) Co (2318.HK: Quote, Profile, Research, Stock Buzz) suffered losses on its 5 percent stake in Belgian-Dutch financial services firm Fortis SA/NV (FOR.BR: Quote, Profile, Research, Stock Buzz) and after American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz), which has deep roots in China, had to turn to the Federal Reserve for a big loan.
Ping An, China’s second-largest life insurer, has booked a loss of about 15.7 billion yuan on its investment in Fortis.
“We will further improve our regulations by learning from past experience and guide insurers to make active and prudent investments overseas,” Yuan said.
He said the risk profile of the insurance sector was still under control despite depressed stock prices, which have eroded the profits insurers made last year during the market’s bull run.
Insurers posted an average investment return of 2.1 percent in the first three quarters, the commission said in a statement released at the news conference, without giving any comparison.
At the end of September, insurers had investable funds of 2.88 trillion yuan, up 7.6 percent from the start of the year; stocks, mutual funds and other equity investments accounted for 14.2 percent of that total.
Insurance premiums in the first nine months reached 794 billion yuan, up 49 percent from a year earlier.