China insurers boost infrastructure investments
25 September 2017
Category: News, Asia, China, Global
By Asia Asset Management
China’s insurance companies are becoming more committed to infrastructure investments, including projects related to the “One Belt One Road” (OBOR) initiative, according to the China Insurance Regulatory Commissions (CIRC), the Mainland’s insurance regulator.
CIRC has been urging insurers to focus on domestic investments. The regulator released a circular in May asking Mainland insurers to invest domestically to boost the economy, and reap the benefits of portfolio diversification and improved yield.
Chinese insurers have invested a total 741.4 billion RMB (US$112.59 billion) in OBOR projects as of August since it kicked off in 2013, according to a report in Chinese financial newspaper Securities Daily, citing a CIRC official at a press conference in Beijing on September 21.
The OBOR initiative is aimed at linking China with Central and Western Asia through a network of roads, railways and ports. The Asian Development Bank (ADB) estimates the project will require an investment of about $1.7 trillion a year.
“Mainland insurers have been increasingly active to participate in domestic economy-related investments, including public private partnership, infrastructures, OBOR projects, and debt-to-equity swap,” Securities Daily quotes the CIRC official as saying.
The insurers have also invested 413.1 billion RMB in infrastructure projects in central and northern part of China as at August, the official says.
According to Wang Guojun, an insurance professor at the University of International Business and Economics, boosting infrastructure investments will help Mainland insurance companies to increase their investment returns.
“The average return for domestic insurers was about 5.5% last year, which was relatively low from an asset-liability matching standpoint. They should shift their allocations from equity markets to infrastructures so as to achieve a more stable long-term return,” Mr. Wang tells Asia Asset Management (AAM).
The CIRC official cited in the news report says diversification into alternative assets, including infrastructure, is very significant for the insurance industry. The official says Mainland insurers’ share of alternative investments to their total assets increased by 0.56 percentage points month-on-month to 39.08% as of July.
CIRC will release guidelines on insurance investments in domestic infrastructure projects, including the types of infrastructure they’re allowed to invest in and the investment ceiling, the official says. There was no indication of when the guidelines will be released.
CIRC officials were not immediately available to respond to questions from AAM.