Four insurance companies in China will soon be approved as qualified domestic institutional investors (QDIIs) that will allow them to invest their growing foreign exchange assets in overseas financial markets, an industry regulator said yesterday.
The four issuers are Ping An Insurance, China's second-biggest life insurer, China Life, China's largest life insurer, PICC Property and Casualty Company Limited (PICC P&C), and American International Assurance (AIG), the top global insurer, according to Sun Jianyong, a department director at the China Insurance Regulatory Commission (CIRC).
"The CIRC and the State Administration of Foreign Exchange (SAFE) have reached consensus on the regulatory rules and we are now working out some technical details," the director said.
He also revealed that as a pilot scheme, Ping An was allowed to invest its foreign exchange in the stock of the Bank of Communications in Hong Kong. The bank was listed in Hong Kong this June.
Ping An and China Life were also allowed to buy China Construction Bank shares in Hong Kong using their foreign exchange reserves.
Sun said the two insurers' investment in the banks' foreign stock generated great profits.
AIG, the foreign issuer with branches and joint ventures in China, will set up an investment centre either in Hong Kong or Shanghai to manage the overseas investment of its foreign capital based in China, according to the director.
Early last year, the CIRC issued a draft circular allowing qualified insurers to use their foreign exchange to buy bonds on overseas markets, mainly treasures bonds.
This June, the CIRC announced it would allow qualified insurance companies to use foreign exchange to buy stocks issued by Chinese companies on overseas markets.
But it was not until yesterday that the regulator named the first batch of QDIIs.
"When the detailed circular is issued, every insurance company can apply as long as they meet the standards," Sun said.
According to the regulation, insurers must have at least 5 billion yuan (US$600 million) in total assets and US$15 million in forex-denominated funds.
Experts said the opening-up policy is of great importance because almost all Chinese insures' foreign exchange is deposited at banks and is used very inefficiently.
Although there are many restrictions on the insurers' overseas investments, the CIRC said it would gradually offer more financial instruments.
There should be diversified access for insurance capital investment, such as on securities markets, money markets and in funds, Sun said.
Before the new rule was issued, insurers investments in China were tightly regulated. They were allowed to invest mostly in deposits and bonds, and could only trade stocks through securities investment funds.
Their investment profits have been shrinking over recent years, as the central bank took a series of interest rate cuts to boost domestic demand, and the stock market remained sluggish.