October 23, 2012 / 5:36 AM / 7 years ago

China widens investment options for insurers

SHANGHAI (Reuters) - China’s insurance regulator has widened investment options for the country’s insurers, allowing them to trade index futures and financial derivatives at home and expand their investment scope abroad.

The move is the latest in a series of rule changes by the China Insurance Regulatory Commission (CIRC) this year to help diversify investments by insurers, which are suffering from a wobbly domestic stock market that slumped 22 percent in 2011.

Highlighting the struggles faced by insurers, China Life (2628.HK) (601628.SS), the world’s largest insurer by market value, issued a profit warning on October 18 signalling its first quarterly loss since 2008.

The CIRC will now allow insurers to trade index futures and derivatives in the domestic market, it said in a statement posted on its website on Tuesday, providing the firms with a much-needed tool to hedge risks.

Chinese insurers can invest up to 20 percent of their assets in stocks, and most of them are highly vulnerable to domestic market volatility.

In a separate statement issued late on Monday, the CIRC also lifted a restriction limiting Chinese insurers to invest only on the mainland or in Hong Kong. They will now be able to invest in 45 countries, including 25 developed economies such as the United States, Australia and Japan, as well as 20 developing economies including Brazil, India and Thailand.

Approved asset classes have also been expanded from equities and bonds to real estate, currency products and non-bond fixed-income products.

However, the quota of year-end total assets that domestic insurers can invest abroad has not been increased, remaining at 15 percent.

Chinese insurers have total assets of 6.6 trillion yuan, meaning they can invest up to about $150 billion in overseas capital markets.

The regulator also widened the scope of investments Chinese insurers can make onshore, increasing the share of total funds they may invest in wealth management products, trust products, real estate and infrastructure projects.

Reporting by Pete Sweeney and Samuel Shen; Editing by Kazunori Takada and Chris Gallagher

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