China has rolled out new measures to encourage insurance companies to invest in blue-chip and high-tech stocks, as part of its broader efforts to boost the capital market and the real economy.
The National Financial Regulatory Administration issued on Sunday a set of new rules that took immediate effect, lowering the risk weighting for insurers' shareholdings of CSI 300 index members to 0.30 from 0.35.
The risk factor for investing in stocks listed on the STAR Market was adjusted to 0.40 from 0.45. For insurers' investments in public infrastructure securities through real estate investment trusts or REITs, which are not applied with the pass-through regulatory approach, the risk factor was lowered to 0.50 from 0.60.
Furthermore, the regulator also assigned a risk weighting of 0.40 to insurers' equity investments in unlisted companies operating in strategic and emerging industries, while optimizing the standards for the solvency of insurance companies, through measures like cutting minimum capital requirements when calculating solvency ratios.
Industry executives and experts said the move will channel more insurance capital into the capital market, and eventually support the stable and healthy development of the insurance sector as well as the real economy.
"The reduced risk factor of capital charges for certain invested assets, such as stocks of CSI 300, stocks listed in the STAR Market and REITs, will provide more flexibility to insurers to cope with the challenging investment environment with declining interest rates," said Zhu Qian, vice-president and senior credit officer at Moody's Investors Service.
Analysts of CSC Financial Co Ltd said the new rules will effectively expand the gateway for insurers to allocate long-term insurance capital for equity investments in an active and stable manner.
That will help revitalize the capital market, especially considering the timing now, which should help them to buy stocks at relatively low prices. In addition, new policies to guide more long-term capital into the stock market are likely to be rolled out soon, they said.
"The new policy will effectively promote the flow of insurance capital into equity investments, especially into scientific fields and technological innovations," said Wang Junhui, chief investment officer at China Life Insurance (Group) Co.
China's capital market is experiencing fluctuations due to multiple domestic and external factors, but the long-term sound economic prospects of the Chinese economy remain stable. As the authorities have been rolling out one policy after another to boost the capital market, the market currently faces a critical window to upgrade, and China Life Insurance is very confident in the stock market, Wang said.
He also said insurers' total investments in the A-share market amount to nearly 3 trillion yuan ($410 billion), which have been already helping stabilize China's stock market.
Wang Guojun, a professor at the School of Insurance and Economics at the University of International Business and Economics, said the new policy will likely help inject around 200 billion yuan more from insurance firms into the stock market.
Zhou Ming, a professor at the School of Statistics of the Renmin University of China, said the reduction of the risk weighting will free up more capital for insurers, helping them to improve utilization of insurance capital and enhance their financial performance.
At the same time, the new policies will also gather more long-term capital for the real economy through the capital market and help safeguard the stable and healthy development of strategic industries and high-tech and innovative sectors, Zhou said.
Zhu of Moody's said most insurers, except for a few large ones, will benefit from a 5 percent to 10 percent reduction in the minimum solvency capital calculation, the denominator of the solvency ratios, thanks to the new policy.
The policy will also encourage life insurers to focus on long-term protection products, Zhu said.
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