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Insurers to invest in real estate industry

By Hu Yuanyuan (China Daily)
Updated: 2008-08-26 10:46

Chinese insurance companies could soon be allowed to invest in the real estate sector, an important means to match their long-term assets and boost their investment returns, according to the draft of the revised insurance law.

"Compared with the existing Insurance Law, which came into effect in 1995 and only let insurers put money on government and financial bonds, the revised one expands the investment channels to include bonds, stocks, funds and real estate," said Wu Dingfu, chairman of the China Insurance Regulatory Commission (CIRC), the industry watchdog. He made the remarks as the Standing Committee of the National People's Congress reviewed the draft of the revised insurance law yesterday.

"This is a move in the right direction, and we will try any new investment channel as long as it does good for our company," said Fang Zhinan, general manager of CITIC-Prudential Insurance Co (Beijing branch). "We will keep a close watch on more detailed regulations in this regard."

According to Hao Yansu, an insurance professor from the Central University of Finance and Economics, the largest change in the revised insurance law is the expansion of insurers' investment channels, particularly the opening up of investments in the real estate sector.

Since insurance companies' capital seeks long-term returns, real estate, especially quality office buildings and commercial properties, are perfect for them, said Hao.

In fact, a number of insurance companies have made some attempts in property investment through various means. The country's second largest insurer Ping An, for instance, poured more than 4 billion yuan ($584.39 million) into the property sector in 2007 through its investment arm of Ping An Trust & Investment Co.

"Though the opening up of more investment channels bring insurance companies bigger chances for higher yield, they should be particularly cautious about the growing risks," said Hao.

What worries Hao most is that the rapid growth of premium in the first half of the year is mostly driven by short-term investment-oriented products rather than traditional policies focusing on protection and usually paid in the long run.

Statistics from the CIRC show that the country's life insurance sector saw a 66.7 percent jump from January to July this year, the most rapid growth in one decade. However, 79 percent of them are single premiums.

To prevent potential risks, the draft also stipulates a rule to manage insurers' investment risks. And insurance companies could also set up professional asset management firms for better investment.

Members of the Financial and Economic Committee also suggested that fundamental principles on catastrophe insurance should be included in the draft. China has suffered more than 1 trillion yuan of direct economic losses from the snowstorm early this year and from the Wenchuan earthquake in May, but the payment from insurance companies only accounts for a mere 1 percent, far behind the international average that usually ranges from 30 percent to 40 percent of the losses.