China Drops Limit on Insurer Investment in Banks, CIRC Says

China has abolished a rule limiting insurance companies’ investments in commercial banks as the industry regulator gives insurers more freedom to manage risks.

The China Insurance Regulatory Commission didn’t specify in a statement posted on its website yesterday which specific investment restrictions have been eliminated. The CIRC didn’t immediately reply to a fax sent to its Beijing-based press office seeking comments on the release.

Chinese insurers were limited to investing in a maximum of two banks if their ownership exceeded 5 percent under rules published in 2006, when the regulator ended a 13-year ban barring insurance firms from expanding into banking and securities businesses. Insurers shouldn’t have more than 3 percent of their total assets invested in banks, according to the 2006 regulation.

“The government is gradually opening the channel for universal banking,” said Xie Jiyong, a Shanghai-based analyst at Capital Securities. “It should be positive news for insurers as the shareholdings can help them sell policies over bank counters and their investment returns may benefit going forward given the low valuations of banks.”

The insurance regulator has been gradually widening the investment scope of insurers over the past few years to help them improve returns and bolster their ability to settle claims and manage risks.

More Freedom

Shares of Chinese insurers traded on the Shanghai stock exchange jumped. New China Life Insurance Co. (601336) surged 10 percent, its biggest gain since June, while China Pacific Insurance (Group) Co. jumped 5.6 percent, also its biggest gain in six months. China Life Insurance Co. added 2.6 percent.

Ping An Insurance Group Co. (2318), the only Chinese insurer to control a bank, rose 4.9 percent to HK$60.50 in Hong Kong trading, its biggest gain since March. Thailand’s Charoen Pokphand Group Co. agreed to buy HSBC Holdings Plc’s 15.6 percent stake in Ping An for $9.4 billion, London-based HSBC said in a statement today.

After allowing banks to invest in insurers on a trial basis in the past two years, the latest relaxation shows the government is now giving insurers more freedom buying into lenders, Xie said.

China Life, the nation’s biggest insurer, bought a 20 percent stake in China Guangfa Bank Co. in 2006. Ping An Insurance, the second largest, this year completed its acquisition of Shenzhen Development Bank Co. PICC Property & Casualty Co. and its parent People’s Insurance Co. (Group) of China Ltd. in 2009 invested 390 million yuan ($63 million) in Bank of Hangzhou Co.

‘Good Target’

“It would be good particularly for big insurers such as China Life that want to control a bank,” Olive Xia, a Shanghai- based analyst at Core Pacific Yamaichi International Ltd., said. “But it’s not easy to find a good target after Ping An’s acquisition of Shenzhen Development Bank, and insurers’ capital strength isn’t as strong as before.”

China Life’s solvency ratio, which measures the amount of capital an insurer has relative to its potential claims, was 170 percent at the end of 2011, down from 212 percent a year earlier.

Ping An’s third-quarter profit rose 21 percent as its banking operations contributed more revenue. In contrast, China Life’s reported its first quarterly loss since 2008 for the three months ended Sept. 30 on lower investment returns and impairment losses.

The CIRC drafted 10 rules that will broaden insurers’ investment choices in bonds, infrastructure, property and overseas markets to boost support to the real economy and capital-market reforms, the watchdog said in a statement on its website on June 4.

The regulator in May allowed insurance companies to buy exchange-traded corporate bonds that are unsecured, as well as non-financial company debt and unsecured convertible debt issued by commercial banks, as the government seeks to expand the bond market.

--Zhang Dingmin, Luo Jun. With assistance from Bonnie Cao, Bei Hu. Editors: Andreea Papuc, Malcolm Scott

To contact the Bloomberg News staff for this story: Zhang Dingmin in Beijing at Dzhang14@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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