Chinese Insurers’ Investment Strategies, Opportunities & Challenges

6.26.2017

Chinese Insurers’ Investment Strategies, Opportunities & Challenges
By Steven Feng, Vice President

The 2nd China International Insurance Asset Management and Investment Summit, held in Beijing this spring, brought together insurers, asset managers and government officials from across the region. Lively discussions covered the latest policies and regulations in the insurance industry, as well as asset allocation trends, and strategies of Chinese insurers investing in the private and public markets.

I participated on a panel entitled “Insurer Portfolio Diversification Strategies in a Fast Moving Environment” alongside Mingchen Xia, Hamilton Lane Managing Director in Asia. This panel focused on the rapid development of China’s insurance sector and the growing number of insurers that are expanding their investment footprint overseas. This has been an important topic for some time in China, and there seemed to be little doubt that regulations will dampen this trend of diversifying overseas.

The panelists discussed the fact that many Chinese insurers are moving away from local sovereign bonds and short-term deposits, which may not provide an attractive risk and return trade-off in a low interest rate environment. They are instead considering more calculated risks, such as alternative investments, global equities and the Hong Kong stock market, which could prove to be good investment options and provide higher returns through diversification. Higher allocations to alternative investments are commonly made by small and mid-sized insurers in China, as they are competing with their larger counterparts for returns. From an asset manager’s perspective, we expect many of these small and mid-sized insurers to work with foreign managers on offshore allocation, given their lack of overseas investment experience and expertise.

The panel also focused on the challenges that Chinese insurers face in their investment activities, despite a loosening of investment regulations that were put in place a few years ago. Today, insurers that want to deploy capital overseas must obtain qualified licenses from the China Insurance Regulatory Commission (CIRC). Additionally, currency policy requires regulatory approval for purchase of property abroad, and overseas investments require permission by the State Administration of Foreign Exchange due to foreign exchange quotas; all of which could influence an insurers’ investment pacing. On top of that, some insurers have begun competing with emerging institutional investors in the market, such as asset and wealth management firms.

Regulations and capital regimes in China continue to evolve, and China’s insurers have to adapt to these changes. In today’s landscape, insurers must recalibrate their expectations of returns and volatility and take advantage of new opportunities, and we believe we’re currently witnessing this shift.


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