The planned move by financial authorities to allow local insurers to buy stocks and bonds in China is expected to help the insurance sector lower risk by diversifying their investment portfolios, analysts said yesterday.
“China remains a fast growing economy. After recent consolidation in its stock market, it is more likely share prices there will go up,” Hua Nan Securities Co (華南永昌投顧) analyst Henry Miao (苗台生) said.
“Once local insurance companies are allowed to buy Chinese securities. They will be able to diversify their portfolios by moving funds currently parked in Europe and the US, whose economies show signs of slowing,” he said.
China’s stock market has fallen more than 21 percent from this year’s peak in January, and Miao said local insurers are expected to take advantage of low valuations.
The Financial Supervisory Commission (FSC) announced on Tuesday that it will give the green light to local insurers to invest in stocks and bonds in China after revising the Regulations Governing Foreign Investments by Insurance Companies (保險業辦理國外投資管理辦法).
The draft revision states that insurers must have a risk-based capital ratio of no less than 250 percent and have already set up a dedicated department to manage and control investment risk for them to be eligible to invest in China.
Eligible insurers must also have no record of violating foreign investment regulations over the past year, the draft revision said.
China securities investments will be limited to 10 percent of the FSC-approved foreign investment amount for an eligible insurer, while investments in Chinese government bonds will not be allowed to exceed 5 percent of the FSC-approved foreign investment amount.
“Local life insurers could be the biggest beneficiaries of the new regulations as they are sitting on a lot of idle funds,” Taiwan International Securities Corp (金鼎證券) analyst Brandon Liu (劉恒成) said.
Liu said Cathay Life Insurance Co (國泰人壽), Shin Kong Life Insurance Co (新光人壽), Fubon Life Insurance Co (富邦人壽), China Life Insurance Co (中國人壽), Nan Shan Life Insurance Co (南山人壽) and Taiwan Life Insurance Co (台灣人壽) are among the possible qualified investors under the new rules.
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