CHINA LIB­ER­ALISES IN­SURANCE CAP­I­TAL IN­VEST­MENT REG­U­LA­TION

Source: Clif­ford Chance, 15 Novem­ber 2012

Insurance - - INDUSTRY UPDATES -

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

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