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Regulation on insurance asset unveiled
By Zhao Renfeng (China Daily)
Updated: 2004-04-26 08:43
The China Insurance Regulatory Commission (CIRC) released yesterday a
long-awaited provisional regulation on the supervision of insurance asset
management companies, aiming to further enhance insurers' ability to manage
their bulging coffers well.
Issuance of the landmark regulation, which will take effect on June 1, was an
imperative step as huge piles of premium income have been built up, putting
heavy pressure on insurance companies for better yields, according to officials
with the CIRC, the industry regulator.
"The underwriting operations and asset management operations are seen as two
important wings for insurance companies," said Yang Huabai, director of the
CIRC's legal department.
"Managing assets well has become a pressing challenge for insurance
companies."
The newly released regulation sets a high threshold for establishing an
insurance asset management company. "That's mainly out of the consideration that
asset management companies should have enough capability to dodge investment
risks," said Yang.
The regulation stipulates that the establishment of an insurance asset
management company should be initiated by an insurance company or one of its
shareholders should be an insurance company.
The insurance company should have a history of more than eight years with
more than three years of clean records. The net asset of the insurance company
should be no less than 1 billion yuan (US$120 million) and the registered
capital for the insurance asset management company should be no less than 30
million yuan (US$3.6 million).
The regulation stipulates an insurance asset management company should only
dispose of insurance assets, which means no assets from other industries should
be involved even if the assets are from the company's non-insurance
shareholders.
Yang said small insurance companies are allowed to team up with qualified
large insurers to establish asset management companies. Foreign and joint
venture insurance companies are also allowed to set up asset management
companies if requirements are met.
The issuance of the new regulation, according to Yang, did not hint at the
broadening of investment channels for insurers.
But insurance companies would be better positioned to place their money in
capital markets once the rules are relaxed, he said.
Increasing by one-third annually, on average, the industry's premium income
has been approaching 1 trillion yuan (US$120 billion) as Chinese people grow
richer and as the government dismantled a cradle-to-grave welfare system.
However, due to policy restrictions, insurers are only limited to investing
in bank deposits, bonds and mutual funds.
Insurance companies have long been hankering for more investment freedom to
enhance returns, a key factor in ensuring their ability to pay claims, but the
process is expected to be gradual.
Insurance companies are urged to come up with a professional approach to
operate their massive fund reserve.
According to Yang, the original method of setting up an internal asset
management department under an insurance company cannot respond well to the
current needs of some insurers with large reserves, which demand high efficiency
in operating huge funds.
Forming a separate asset management company is also in line with common
practice in Western mature markets.
By the end of 2002, among the 34 world's largest insurers on the Fortune 500
list, 20 have established asset management companies.
The country's top property insurer PICC Property & Casualty and top life
insurer China Life were also given the green light last year by the government
to establish their own asset management companies and the one with PICC has
already been set up.
Yang said there are many insurance companies expressing interest in
establishing asset management companies, but he declined to name
them.
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