Insurers allowed to invest in unlisted companies

The China Insurance Regulatory Commission (CIRC) released provisional measures for insurers to invest in private equity and real estate sectors on Sept. 5, allowing them to invest in the equity of unlisted companies and the real estate sector.

The insurance regulator said that this move aims to improve the asset-to-debt ratio, optimize asset portfolios, ease investment pressure, diversify investment risks, safeguard assets and preserve the interests of policy holders.

Under the provisional measures, if insurers seek to make direct equity and real estate investments, their solvency adequacy ratio should not be lower than 150 percent both at the end of last year and the end of last quarter and they must be in the black in the previous fiscal year. If they want to make equity investments, their net assets should not be lower than one billion yuan. Their net assets must be at least 100 million yuan for real estate investments.

In terms of the investment cap, the book balance of an insurer's investments in unlisted enterprises should not be more than 5 percent of its total assets at the end of last quarter, and the book balance of an insurer’s investments in financial products relating to equity of unlisted enterprises such as private equity funds should not be more than 4 percent of its total assets at the end of last quarter. The investments by an insurer in such two types of unlisted enterprises should not exceed 5 percent of its total assets at the end of last quarter.

In regards to investments made by insurers through private equity funds, the regulator stipulates that for investment institutions that found and manage such a fund, their registered capital should be at least 100 million yuan and they should have a risk reserve system established. Furthermore, it is required that the insurers should have stable management teams and have sophisticated experience in private equity investments.

Private equity insiders said that the private equity industry began to contact insurance companies some time ago and have been waiting for the promulgation of related investment rules. Only a few large RMB fund management teams can achieve the various high-level standards of the provisional measures.

In regard to real estate, the commission formulated that only real estate with legal and clear property rights, relatively concentrated management ownership and the ability to meet the goals for investment returns should be the target of investments. Investors should not invest in commercial residences nor directly participate in real estate development or invest in establishing real estate enterprises.

The book balance of the investments in real estate is less than 10 percent of the total assets of the company at the end of last quarter and the book balance of the investments in the real estate-related financial products is less than 3 percent of the total assets at the end of last quarter. In addition, the total book balance of the investments in the real estate and the real estate-related financial products is less than 10 percent of the total assets at the end of last quarter.

By People's Daily Online