Wall Street Journal: China Insurance Regulator — Loosening Controls on Insurers’ Investments
Jun 4, 2012
The following article was published in The Wall Street Journal on June 4, 2012:
By Esther Fung
— China’s insurance regulator is loosening controls on insurers to give them more flexibility in making investment decisions, an unnamed official says
— The regulator will allow insurers to engage in margin-trading and short-selling, the official says
— The regulator is planning to issue rules covering derivatives investments by insurers, the official says
— The regulator will allow Chinese insurers to invest in more overseas markets and types of securities, the official says
(Adds background about China’s reforms in the 2nd paragraph, more details on relaxing investment controls in the 5th-8th paragraphs.)
SHANGHAI–China’s insurance regulator is loosening controls on insurers to give them more flexibility in making investment decisions, an unnamed official said in comments posted on the regulator’s website.
The move comes as China is rethinking the way its financial system works by pushing ahead with market-oriented reforms of its capital markets and financial sector to ensure the efficient allocation of resources as deteriorating global economic conditions put pressure on Beijing to bolster domestic consumption and boost growth.
The easing of controls on insurers is in line with economic trends and the government’s efforts to give insurers more leeway on how they use their funds, the official said in a question-and-answer statement posted Monday on the website of the China Insurance Regulatory Commission.
The official said the CIRC has been reforming the rules governing how insurers deploy their assets and their investments in bonds and overseas assets since late last year as part of an effort to help such companies improve their profit models and increase the stability of their investments.
Among the new rules being drafted is one that will allow insurers to engage in margin-trading and short-selling, the official said, without saying when the rules would be released.
China has permitted qualified securities companies to conduct margin-trading and short-selling using their own stocks and cash reserves since 2010, but other financial institutions aren’t allowed to participate in such transactions.
The official said the CIRC is also planning to issue rules on insurers’ investments in derivatives to help them better manage and hedge risks arising from fluctuations in the stock market. The official didn’t provide more details on what kinds of derivatives might be used or when the rules will be released.
The CIRC is also planning to allow Chinese insurers to invest in more overseas markets and types of securities, as well as to increase the proportion of such investments in their portfolios, the official added.
The regulator has adjusted the rules on insurers’ equity and fixed asset investment to prevent insurers from relying too much on capital markets, the official said.
These reforms are at different stages of implementation, and will in turn support Beijing’s capital market reforms as well as innovation at banks, securities firms and fund-management companies, the official said.
-Amy Li contributed to this article.