Regulatory changes are expected to spur insurers to accelerate their expansion into dedicated investment management, at the same time damaging the prospects of fund management firms.

AM entities within insurance firms oversee a group's investment decision-making, making them the gatekeepers of China's investible insurance assets, which are projected to reach Rmb5.75 trillion ($880 billion) by the end of this year. Traditionally, insurers are fund managers' biggest clients.

Until now, each insurance AMC could only manage the group’s assets, as well as their own. But new guidelines announced by the China Insurance Regulatory Commission (CIRC) allow AMCs to manage third-party assets, the AMC’s own in-house assets and products launched by the AMC.

Further, the requirements for setting up an insurance AMC lower the prerequisite for an applicant's operating history from eight years to five. However, the CIRC has upgraded existing operational requirements, such as increasing the required registered (paid-in) capital from Rmb30 million to Rmb100 million, and doubling the amount of total net assets needed to Rmb10 billion.

Consultancy Z-Ben Advisors estimates that at least eight more insurers, in addition to the current nine, will now qualify to launch a dedicated investment subsidiary – not only to expand their traditional role of managing internal capital, but also to start raising third-party assets.

Immediately after the CIRC move, domestic media speculated that Anbang Property Insurance had been slated for approval to set up an AMC soon.

Last December, CIRC approved Sino Life Insurance to start preparatory work on establishing the industry's 10th insurance AMC. Three other firms -- Sinosafe General Life, Minsheng Life and Generali China Life -- were also rumoured to have submitted applications.

Although requirements on registered capital and net assets have been raised, the lowering of the rule on years of operation means most insurers will accelerate their expansion plans, says Z-Ben.

At least five formal approvals are expected by the year-end. In addition, Hua An Property, Harvest Life, Union Life, Sunshine Insurance, Citic-Prudential and Aviva-Cofco may also qualify under the new guidelines.

Z-Ben notes that top-tier insurance AMCs had already started managing investments of smaller insurers, as well as enterprise annuity (i.e. corporate pension plans) on a trial basis. These business lines are now officially recognised, allowing insurance AMCs to raise third-party assets, publicly as well as privately.

Z-Ben expects these top-tier players to consolidate their position within the insurance industry and, sooner rather than later, begin to expand their offerings to other institutional investors in China.

“Given that many insurers already have dedicated pension subsidiaries and insurance AMCs are already managing enterprise annuity assets, pension assets would be the obvious next step for these firms,” says Francois Guilloux, Z-Ben’s director of regional sales.

But he notes that the move to allow insurance AMCs to become dedicated investment managers puts them in direct competition with fund management firms.

“Already, institutional business is highly competitive for FMCs, and therefore only a few FMCs have managed to break even," says Guilloux. "More competitors, especially those with strong relationships with potential clients, are sure to add additional pressure for fund managers to secure institutional mandates.”