Chinese insurance asset managers are set to launch more fund products that serve the investment needs of their parent insurers and increasingly other onshore institutional investors following the issuance of new rules on these products.

The new regulation was announced by the China Banking and Insurance Regulatory Commission last Friday (September 11). They provide more granular details on regulating insurance asset management products while expanding their investment scopes, effectively supplementing an overarching set of asset management rules released in 2018. CBIRC said the purpose of the new rules is to ensure the healthy development of the products and better protect investors.

Melody Yang,
Simmons & Simmons

Insurance asset management products are issued by the asset management subsidiaries of insurance companies. These products, which include multi-asset and alternative funds, are usually heavily subscribed by their parent insurers. 

The volume of the products have been growing rapidly in China, partly because of the rapid growth and gradual liberalisation of the country’s life insurance industry and also because of the comparatively stable nature of the products, said Melody Yang, a partner at UK law firm Simmons & Simmons.

The products' outstanding amount has grown 37% from the end of 2017 to June this year, from Rmb2.5 trillion ($368.81 billion) to Rmb3.43 trillion ($505.69 billion). And more is likely.

“We believe the new set of rules will further promote the growth of the insurance asset management industry,” Yang told AsianInvestor.

The CBIRC’s new rules require all the insurance asset managers to enhance their own investment management capabilities, through rules on competence qualification, information disclosure, risk control mechanisms, among others.

However, after they do so the insurance asset managers only need to register the products before launching them, instead of having to seek regulatory approval for each new batch. 

LEVEL PLAYING FIELD

While designed for life insurers the products have been gaining interest from other Chinese asset owners like pension funds, in addition to qualified individual investors – particularly after China’s insurance regulator introduced new rules that allowing the products to be sold to wealthy individuals and institutions including pension funds on May 1.

However, before the new rules insurance asset managers had to meet the requirements of both China’s securities regulator and its insurance regulator, which sometimes demanded different standards. This has been cumbersome for issuing fund managers – and put them at a disadvantage against non-insurance fund houses, Yang said.

The new rules can help to level the playing field between insurance asset managers and their rivals, which include the wealth management subsidiaries of banks.

They should help enhance the regulatory system and give a clear direction for insurance asset managers to expand their businesses to appeal to other investors too, Jacqueline Zhang, a deputy general manager at Ping An Asset Management, told AsianInvestor.

LARGER INVESTMENT SCOPE

The new rules also allow more diversified investment options by expanding the scope of eligible asset classes. There are a number of newly added items to the permitted investable assets such as over the counter (OTC) traded stocks, and a higher percentage of the AUM in these asset management products is now allowed to invest into infrastructure projects.  

The products will then be able to offer stronger support to the real economy as more capital will be directed to private companies, as well as infrastructure and urbanisation projects such as transportation and water conservancy.  

“It is difficult for us to opine which specific one is worth the most attention.  That said, we believe the overall relaxation has largely removed restrictions that have existed in place for a long time and granted the manager higher level of investment discretions,” Yang said.

The simpler regulatory requirements and broader array of asset types should further hasten the growth an already fast-expanding part of China’s investment industry.

Insurance asset management products already take up a large portion of insurers’ alternative investments portfolio and the new rules will promote further investment into these products because it sets clear guidelines for their eligibility, disclosure, risk management, among other areas, Zhu Qian, senior credit officer in the financial institutions group at rating agency Moody's Investors Service, told AsianInvestor. 

All-told, there were Rmb1.98 trillion of outstanding insurance asset management products as of June, comprised of multi-asset products investing in bonds and stocks. Another Rmb1.32 trillion were debt investment plans invested mostly in infrastructure projects with an average duration of seven years, while Rmb130 billion were equity investment plans investing in the private equities. Non-Chinese investors are not currently allowed to buy the products.

While the products have enjoyed impressive growth over the past three years, they still only make up a relatively small part of China’s asset management industry, which has more than Rmb100 trillion of assets under management.

  Multi-asset products Debt investment plans Equity investment plans
Registration
time
2 working days 5 working days  5 working days
Underlying 
assets/
relevant rules
- bank deposits
- bonds
- stocks
- mutual funds
- other insurance AM products

- up to 40% of the product AUM
in replenishing an issuer's
operational funding 
- product scale doesn't have to
match AUM of the guarantor

- private placement
- block trade
- OTC-traded stocks
- preferred shares
- convertible bonds                 

Source: CBIRC