China’s New Regulations on Investment of Insurance Capital Go back »

2012-12-21 | Nanjing

China Insurance Regulatory Commission (the “CIRC”) has issued various interim measures and circulars on domestic and oversea investment of insurance capital recently. Before the issuance of these regulations, only insurance companies and insurance asset management companies (the “IMACs”) were allowed to manage insurance capital. Nevertheless, the recent development of the regulatory regime eases the standard to allow more market participants to be eligible to manage insurance capital and increase the eligible asset classes for insurance capital allocation. Although the development of regulatory regime on insurance capital investment is mainly focused on domestic investment activities, the Implementing Rules of the Interim Administrative Measures on the Overseas Investment of Insurance Capital issued by CIRC on 12 October 2012 has made changes on the oversea investment of insurance capital. This article will provide a general introduction of major changes of the regulations on both domestic and overseas investment activities on insurance capital.

Changes on the domestic investment of insurance capital

One of the major changes is that the series of regulations have expanded the scope of permissible assets managers. Previously, only insurance group (holding) companies, insurance companies and IAMCs are eligible to manage insurance capital. Article 3 of the Interim Measures for Equity Investment with Insurance Funds issued by the CIRC on September 2010 allows insurance company to invest in the equity investment funds and other relevant financial products launched and established by an equity investment management institution. Article 4 defines “investment management institution” as institution legally registered within the territory of China to engage in equity investment management. In practice, it seems that only the IMACs are qualified as investment management institution. Those investment management institution sponsored by securities companies, commercial banks and trust companies are not qualified under this regulation. As a result, the CIRC issued the Interim Measures on the Administration of Entrusted Investment of Insurance Proceeds in July 2012 to enable PRC–incorporated securities companies, securities asset management companies and securities investment fund management companies (and their PRC subsidiaries) to manage insurance proceeds on behalf of insurance companies which provides more investment channels for small and medium-sized insurers that do not have internal investment teams or insurance asset management subsidiaries. Introduction of more fund managers also creates a competitive market for this industry.

In addition, the Notice on the Issues related to Insurance Asset Management Companies issued by CIRC in October 2012 also broaden the capital base by allowing IAMCs to manage a more wide scope of capital includes pensions, enterprise annuities, housing reserve funds and the funds of other qualified investors. Previously, IAMCs were only permitted to manage insurance capitals such as registered capital, common reserve funds, undistributed profits, various reserve funds and other funds of insurance companies. This development will help IAMCs to expand their business scope and develop the client base. Furthermore, Article 106 of the latest version of the PRC Insurance Law issued by the Standing Committee of the National People's Congress on February 2009 expands the eligible asset classes for investment which includes all types of bonds, stocks and shares of securities investment funds and real property. Before the promulgation of this latest version, insurance capitals were only allowed to be invested in bank deposits, treasury bonds and financial bonds.

Changes on the overseas investment of insurance capital

The CIRC issued the Detailed Rules for the Implementation of the Interim Measures for the Administration of Overseas Investment with Insurance Funds (the “Implementing Rules”) on 12 October 2012 aims to expand China’s overseas investment on insurance capital. This new Implementing Rules expand the asset categories and jurisdictions in which Chinese insurers can invest abroad, and provide detailed requirements for such areas as investor qualifications, risk control, and the supervision and administration of the offshore investments of insurance funds.

The notable change of the Implementing Rules is that it expands the assets classes to permit Chinese insurance companies to invest in private equity and real estate. Article 11 of the Implementing Rules allows insurance capitals to be invested in 45 countries and regions, including 25 developed economies and 20 emerging economies, in four categories of products which are money market, fixed income, equity and real estate.

Conclusion

Generally speaking, the development of the new regulatory regime on investment of insurance capital is in line with the trend of the current market and aim to diversify the investment activities. While the newly issued Implementing Rules aim to expand China’s overseas investment on insurance capital and provide a general guideline in this regard, the recent developments are mainly focused on the domestic investment of insurance capital given the fact that there is a sizeable amount of insurance funds in China which not only presents more opportunities for overseas managers who would like to raise funds in the China market but also strengthens the market competition.

Source: PICOZZI & MORIGI LAW FIRM