Chinese life insurers are showing an increased interest in overseas investments due to lower returns at home but appear unlikely to greatly do so this year, say investment executives and observers.

The offshore investment volume of the 52 insurers which have obtained approval from the China Banking and Insurance Regulatory Commission (CBIRC) to invest overseas totalled $70 billion, accounting for 2.75% of their total assets as of the end-2019, according to a report released last week by the Insurance Asset Management Association of China (IAMAC), a national self-regulatory body. This percentage remains far lower than the regulatory limit of 15%.

Of 12 major insurers whose offshore investment allocations were above the industry average, only two had invested more than 10% of their assets overseas.

As Beijing tries to mitigate the economic damage caused by the coronavirus outbreak by monetary measures including cutting local interest rates, Chinese insurers look set to report lower investment yields and earnings this year. With domestic yields falling, these insurers will be increasingly be keen to source higher returns offshore.

Zhu Qian

However, market participants believe that any offshore investment push by local insurers is unlikely to be very large, in part because of Covid-19 fuelled market volatility.

Insurers’ offshore investments are a developing trend and their overseas investments will likely rise, but it’s unlikely that this change will be very material this year, the chief investment officer of a Chinese insurer told AsianInvestor on condition of anonymity.

“Chinese insurers are interested in investing overseas to diversify their asset base and participate in the global capital market, [but] they need regulatory approval and quota to fund their overseas investments. Therefore, we don’t expect the size of the overseas investments to grow very quickly,” Zhu Qian, the senior credit officer of financial institutions group at Moody's Investors Service, told AsianInvestor. 

The country’s lifers are still required to gain quota approvals if they want to invest through the qualified domestic institutional investors (QDII) scheme.

Overseas investments also subject Chinese insurers to foreign exchange risks and the volatility of the global capital market, which could be severe amid Covid-19, she added.

“Insurers, especially life insurers, invest offshore mainly for the purpose of diversification and yield stability enhancement, [but] we don’t expect their offshore exposure to change dramatically as most of the insurers’ policy liabilities are still denominated in renminbi,” Terrence Wong, the senior director of insurance for Asia Pacific at Fitch Ratings, told AsianInvestor.

CHANNELS AND TARGETS

According to the IAMAC report, Chinese insurers’ main overseas investment channel qualified domestic institutional investor (QDII) scheme because they deployed 59% of their funds offshore via the scheme.

Other channels included overseas borrowing backed by domestic collateral (13.3%), foreign direct investment (8.1%) and overseas listing (7.1%).

Terrence Wong

Insurers should continue to explore different venues for investing overseas, including the Stock Connect and Bond Connect schemes between Hong Kong and China, as well as the London-Shanghai Connect programme, said Cao Deyun, the executive vice-chairman and secretary-general of IAMAC.

Insurers mainly purchased public equity products, with over Rmb200 billion ($28 billion) invested, or private equity, where investments totalled nearly Rmb150 billion, in their offshore allocations last year. Marketwise, nearly half (49%) of the funds were invested in the Hong Kong market and one-fifth were in the US, the report showed.

Mainland insurers will likely continue to show a keen interest in Hong Kong stocks, as more China concept stocks plan to list in Hong Kong, the unnamed CIO said. Most recently, video site Bilibili is considering a secondary listing in Hong Kong, joining other US-listed Chinese companies eyeing a return to the exchange closer to home amid ongoing tensions between Washington and Beijing.

In Europe and the US markets, China insurers would be keen to find opportunities in private equity, he said, adding that it is not meaningful to conduct passive index investing in these markets, he said.

While insurers mainly invested in equity products offshore last year, such investments remained low relative to insurers’ overall invested assets, Wong of Fitch added.