The Dutch pension asset manager's Asia Pacific head of real estate says his team has just had one of its busiest years ever and that 2021 is looking similarly promising.
In particular, it has activated an emergency response mechanism that allows it to make an immediate and thorough review of insurersÆ risk exposures. It is also monitoring cross-border fund flows into and out of these Chinese insurance companies and has been conducting on-site checks of insurersÆ portfolios.
There are 115 insurance companies operating in China, managing Rmb3.19 trillion ($470 billion) in total assets. Of this number, 43 foreign-affiliated insurers from 15 different countries are operating with a total of 134 branch offices.
Yuan notes that ChinaÆs insurance industry is facing a new set of challenges. These include the seriousness and complexity of the global financial crisis, challenges in policy redemptions and solvency levels in the domestic insurance market, as well as the determination and management of risk that will require the highest level of vigilance across the industry.
Yuan notes the CIRC is paying attention to the industryÆs overseas investments and has been monitoring developments in a number of key companies. The CIRC has not yet given approval for the industry to conduct QDII investments, though certain insurers with overseas listings or foreign shareholders do have foreign exposure.
Citing Ping AnÆs large-scale write-down in its investment in the Fortis Group, Yuan says there are lessons over the incident for the rest of the industry to learn. The CIRC ultimately wants insurers to make good judgments and invest according to their strengths. However, the regulator would not stop the insurers from investing overseas because of the current losses.
He says regulators are reviewing the experiences of certain insurers and are looking to plug any gaps in existing supervision of overseas investments. Yet, while the global markets remain volatile, he says the CIRC is still studying ways of improving its overseas investment regulations, and has no near-term plans to release QDII approvals.
According to the CIRCÆs latest statistics, insurersÆ asset portfolios reached Rmb2.88 trillion ($423 billion) as at the end of the third quarter. The pool of assets delivered a positive yield of 2.1% in the first nine months of 2008, up 7.6% year on-year amidst a global financial market meltdown and tumbling A-share market.
57.6% of these assets (Rmb 1.66 trillion) are invested in bonds, 14.2% or Rmb407.56 billion in listed and unlisted equities (which includes securities funds), 24.5% or Rmb703.97 billion in cash, and 3.7% or Rmb107 billion in other asset classes.
Yuan acknowledges the impact of a drop in A-share valuations and the central bankÆs lowering of the benchmark interest rate which has had an effect on fixed-income portfolios this year. He notes the CIRC has been working on opening up new asset classes to help the insurers diversify their portfolios.
Aside from QDII, Yuan says the CIRC is working on a number of initiatives. It has drafted a set of guidelines on asset allocation for insurance assets, and another set for the outsourcing of insurance assets. The regulator has also been working with insurers to develop a mechanism for investment ratings to improve the overall picture on the use of capital.
Following the State CouncilÆs recent rulings on the enlargement of late-stage private equity and infrastructure investments programmes, Yuan says the CIRC is working on selecting insurers with strong risk management records and investment capabilities to help test-run such investments. It is drafting rules for a test pilot programme and will then announce how much insurers will be allowed to allocate to these assets.
Separately, he says the CIRC is circulating its latest draft of a revision of the insurance laws, which will allow insurers to invest directly in property.
Yuan says the draft has not yet been passed in the National Congress, but notes that the rules will most likely help local life insurers acquire long duration assets and gain steady income from commercial property investments. The insurers will be forbidden from acquiring residential properties or market speculation.
Yuan did not respond to questions about the industryÆs solvency level, but said life insurers experienced a policy redemption rate of 2.98% this year. He says the regulator is investigating any potential mis-selling of investment-linked policies and is pushing insurers to improve information disclosure.
Mega players Nippon Life and Dai-ichi Life are looking for opportunities in higher-yield single-A US corporate bonds, which offer more appealing yields than stagnant domestic offerings.
The “lower for longer” monetary policy and stimulus packages, coupled with the rolling out of vaccine programmes favorably support real estate investing in the region, with offices and data centres presenting forward-looking opportunities.
As US fixed income default rates rose and yields fell during the pandemic, are Asian bonds, which have had more stable yields through 2020, looking more attractive?
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