CHINA LIBERALISES INSURANCE CAPITAL INVESTMENT REGULATION
Source: Clifford Chance, 15 November 2012
Since the first promulgation of the PRC Insurance Law in 1995, insurance capital has been stringently regulated in terms of the entities that are allowed to manage it and the eligible asset classes in which it could be invested.
As a result, the business generation of the insurance industry has far outgrown the asset management of the industry, and insurance companies tend to rely on the capital markets to finance their capital needs.
According to the statistics published by the China Insurance Regulatory Commission (CIRC), insurance capital has reached RMB6,900 billion (RM3,382 billion) as of September 2012, but only half of this amount has been put into investments.
For a long time, only insurance companies and their private equity arm – being insurance asset management companies (IMACs) – have been allowed to manage insurance capital. But, they lacked the level of expertise required to effectively manage a sizeable asset pool. Hence since mid2012, the CIRC has issued a series of regulations to liberalise the regulatory regime governing insurance capital deployment.
Clifford Chance, a London-based global law firm, provided a brief overview of recent regulatory
developments and implications on relevant insurance market participants. While recent regulatory developments largely affect the domestic investment activities of insurance capital, they have also impacted overseas investment activities of insurance capital.
Below is a list of the major related regulations from Clifford Chance’s report brief:
(i) The Circular on Several Issues Relating to the Adjustment of Insurance Capital Investment Policy, issued by CIRC on 31 July 2010;
(ii) The Interim Measures on the Deployment of Insurance Capital, promulgated by CIRC and effective as from 31 August 2010 (Insurance Capital Deployment Measures);
(iii) The Interim Measures on the Equity Investment of Insurance Capital promulgated by CIRC on 5 September 2010 (Private Equity Investment Measures);
(iv) The Interim Measures on Property Assets Investment of Insurance Capital, promulgated by CIRC on 5 September 2010;
(v) The Circular on Relevant Issues Concerning the Regulation and Administration of the Deployment of Insurance Capital, issued by CIRC on 7 May 2012;
(vi) The Interim Measures on the Administration of Entrusted Investment of Insurance Capital, promulgated by CIRC on 16 July 2012 (Entrusted Investment Measures);
(vii) The Circular on Issues Relating to the Equity and Property Assets Investment of Insurance Capital, issued by CIRC on 16 July 2012 (Equity and Property Investment Circular);
(viii) The Interim Measures on Bond Investment of Insurance Capital, promulgated by CIRC on 19 July 2012;
(ix) The Notice on Investment in Relevant Financial Products with Insurance Capital, promulgated by CIRC on 12 October 2012 (Financial Products Notice);
(x) The Interim Measures on Financial Derivatives Transactions of Insurance Capital, promulgated by CIRC on 12 October 2012 (Interim Financial Derivatives Measures);
(xi) The Measures on Stock Index Futures Trading of Insurance Capital, promulgated by CIRC on 12 October 2012 (Stock Index Futures Trading Measures);
(xii) The Interim Administrative Provisions for Infrastructure Debt Investment Schemes, promulgated by CIRC on 12 October 2012 (Interim Infrastructure Bond Investment Provisions);
(xiii) The Notice on the Issues related to Insurance Asset Management Companies, promulgated by CIRC on 12 October 2012 (IAMC Notice); and
(xiv) The Implementing Rules of the Interim Administrative Measures on the Overseas Investment of Insurance Capital, promulgated by CIRC on 12 October 2012 (CIRC QDII Implementing Rules).
According to Clifford Chance, Chinese institutional investors have been playing an increasingly important role in the global investment management industry. However, to date, only a handful of Chinese institutions are able to make allocations to overseas investment funds.
Given there is a sizeable amount of insurance funds in China, the recent CIRC enabling regulations present an exciting opportunity for overseas managers looking to raise funds in China. The good news is that the CIRC QDII Implementing Rules have lowered the entry barriers for many of the participants and expanded the eligible asset classes that insurance capital may invest in.
The pace and the breath of these ground-breaking changes is a testimony to the Chinese regulator's resolution to enhance the returns on insurance capital by bringing market competition into this important sector.
RMB1.00 = RM0.49