The scale of China Life's real estate investments have barely budged so far this year but, make no mistake, the country's biggest insurer is hungry for more.

The lifer's first-half results last week showed it added one more real estate project at the end of June compared with the 27 domestic and eight overseas property assets it had a year earlier. Its real estate allocation in proportion to its overall portfolio is also marginally down on the end of 2018.  

“We continue to look at the real estate investment space and are in search of relatively safe assets that have a stable income flow,” Zhao Peng, vice president of China Life, said during a press conference on Friday (August 23) announcing the results. “This is one of the better areas for insurance companies to allocate to.” 

“In the future, we expect real estate to bring us a stable income stream to guard against volatility from the decrease in interest rates and increase yields,” Zhao said.

If so, there is plenty of room to grow, even after China Life increased its percentage allocation by roughly 50% in the second half of 2018.  

The company in October last year reportedly teamed up with China Resources Land and Shanghai Land to launch an Rmb15 billion ($2.7 billion) real estate investment fund. The plan is for the lifer to eventually contribute Rmb9 billion for its majority stake in the city development fund to acquire projects in core Shanghai.

But as of June-end, China Life still had a mere 0.3% allocation to investment properties.China Life H1 2019

Source: China Life

Growing insurer interest in real estate follows the publication by the China Insurance Regulatory Commission of an overarching framework for asset-liability management in March 2018. This, said Stella Ng, director for insurance ratings at Fitch Ratings, is spurring Chinese insurers to lengthen asset duration to better match their long-term liabilities.

“The change among insurers in China became very obvious starting 2018. The liability duration was lengthened, driving more Chinese insurance companies to invest in long-term assets, like properties and long-dated government bonds,” she said.

She told AsianInvestor that she doesn’t expect China Life to be aggressively adding new properties to their portfolio, as real estate assets are still considered risky given the potential volatility of the market.

“I expect China Life to be increasing their exposure to real estate strategically for the purpose of duration matching, rather than purely for more yields,” she said, which would dovetail with the pattern seen to date.

OVERSEAS ALLOCATIONS

Zhao also spoke of China Life's general approach to investing overseas. 

With about $12 billion of overseas investments in total as of June-end, Zhao said the insurer planned to “actively strengthen its global asset allocation”.

Currently, 70% of this allocation is managed by China Life’s internal investment team, while another 18% is managed by managers abroad. He didn't specify whether these were external. 

“We carefully selected investment managers that fit with our management style and we actively strengthened risk control of the investment portfolio,” he said.

The bulk of the remainder is managed domestically for foreign exchange-related investments.

Zhao said China’s foreign exchange controls remained a challenge when it came to investing overseas, which is understandable given the bulk of China Life’s insurance policies are renminbi-denominated.
 
So matching these liabilities with foreign-currency investment yields will be difficult given the restriction, Fitch's Ng said.

“I don’t think China Life will blindly allocate to overseas assets as the lifer will have to match the currency,” she said.

The growing late-cycle credit risks and the fragile global economic environment were more reason for them to tread carefully, she added.

Ng said China Life would opt for “maintainable yields” from quality assets when expanding overseas, in line with its cautious investment approach.

If so, that would be in keeping with the high credit ratings of the non-standard fixed income assets China Life added to its portfolio in the first half of this year, with 99% of the additional Rmb40 billion added rated triple-A.

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