Insurers set for profit boost
By Feng Jie (China Daily)
Updated: 2006-01-14 05:33

Chinese insurers could expect greater profits this year with a further loosening in their investment scope.

The State Council recently allowed insurers to invest indirectly in infrastructure projects and a pilot industrial fund.

It was seen as a breakthrough in efforts to broaden the investment scope of insurance funds and ensure their repayment capacities, said Wu Dingfu, chairman of the China Insurance Regulatory Commission (CIRC).

The move "will help propel insurance companies' asset structure adjustment and shift of profit models," and will be of key significance to increasing the sector's role of supporting economic growth, he told the commission's annual conference on Friday.

"But effective risk management must be the precondition," Wu said, noting the normally large scale and technical complexity of infrastructure investments as well as the lack of experience of Chinese insurers in the area.

To ensure that risk is properly managed, insurers will have to wait until the second half of this year before they can make any substantial investments in infrastructure. Such investments, mostly long-term ones, are seen as a preferred investment option for insurers, particularly life insurers that sell long-term policies.

"We will choose a time after the Chinese New Year to publish the rules," said Sun Jianyong, director of the Insurance Fund Management Regulatory Department.

"But the detailed version will not be released until the second half of this year," he said, referring to the technical procedures that insurers must go through before they can make the investment.

Chinese insurers are showing more maturity in managing their assets, which stood at 1.5 trillion yuan (US$187 billion) at the end of last year, up 27 per cent from a year earlier.

The combined return on investment last year stood at 3.6 per cent, 0.7 per cent up from 2004, the CIRC said.

The return from directly trading stocks, which Chinese insurers were allowed to do from only last year, came in at 6 per cent, outperforming the market, Sun said.

A broader investment scope will be key for the insurance sector to ensure their ability of repayment as claims peak, analysts have said. Nearly half of insurance funds are still held in bank accounts other than yielding more investments.

But their stockpile of indemnity funds is continuing to grow rapidly, following more than 20 years of annual growth of about 30 per cent.

Chinese insurers collected a combined 492.7 billion yuan (US$60.8 billion) in premiums last year, up 14 per cent from 2004, the commission said.

That included 122.9 billion yuan (US$15.2 billion) from property and casualty insurance, which rose by 12.9 per cent from the previous year, and 324.4 billion yuan (US$40 billion) from life insurance, an increase of 16.6 per cent.

While premiums continued to grow rapidly, the sector also witnessed structural improvements, with segments that have long been frustrated with tepid growth improving dramatically.

Partly as the result of the recent establishment of three specialized insurance companies, agricultural insurance, which is of key importance to the well-being of about 800 million farmers, witnessed an 84.26 per cent premiums growth last year - to 730 million yuan (US$90 million) - following years of dormancy thanks to the high cost and loss ratio of the business.

But foreign insurers are grabbing a larger share of the market. The 40 foreign insurers reaped 34.1 billion yuan (US$4.2 billion) in premiums last year, which represented 6.9 per cent of the market, CIRC figures indicated.

China scrapped nearly all restrictions on foreign insurers at the end of 2004, making insurance the first financial sector to embrace full foreign competition.

Three more foreign insurers were allowed to enter the market last year, while a total of 25 operational entities by foreign insurers were set up.

(China Daily 01/14/2006 page5)