Ma Delun, deputy director of the State Administration of Foreign
Exchange (SAFE), said Wednesday that the commission is drafting a
regulation that will allow insurers to sell foreign currency
denominated life policies to local residents and invest forex
holdings in international capital markets.
"The State Council has agreed in principle (to allow the
insurers to invest in overseas capital markets), and we are going
to draft detailed measures for implementation," Ma said at the
China Insurance Conference. The conference was organized by the China
Insurance Regulatory Commission (CIRC) and supported by the UBS
Investment Bank.
Insurance firms in China have long been frustrated by the narrow
investment scope set by regulators. They are only allowed to invest
in bank deposits, Treasury and selected corporate bonds, and trade
stocks through securities investment funds. Analysts say that this
threatens their repayment capacity when claims peak.
With interest rates at a 10-year low and domestic capital
markets struggling to recover from a long period of sluggishness,
insurance companies' investment yields dipped to 3.14 percent in
2002, close to the 3 percent minimum repayment capacity
requirement.
The situation is probably worse when it comes to the insurers'
growing forex holdings, which total US$8 billion at present, partly
owing to tight forex controls. The local currency is still only
partly convertible under the capital account, which includes
portfolio investment.
Nearly all the forex funds of domestic insurers were held in
local bank deposits at the end of last year, Ma said.
Insurance firms welcomed the move. "We have absolutely huge
demand for investing overseas," said Xie Yiqun, chairman of Taiping
Life Insurance. "Part of our registered capital is denominated in
foreign currencies. Having more choices means the possibility for
higher investment returns."
SAFE's Ma said his commission has been loosening forex controls
for the past three years, and will continue to do so, although
China's huge hidden fiscal debt, a fragile banking system laden
with non-performing loans, and inadequate macroeconomic management
capability make the full convertibility of the renminbi a long-term
goal.
"We must be prudent, but that does not mean we won't do
anything," he said.
Allowing insurance firms to make international investments will
not only increase their investment yield, but will help them
improve their competitive edge in the international
marketplace.
Ma also said that SAFE is drafting rules on allowing local
residents to buy forex-denominated life insurance products, but did
not elaborate.
Analysts said that the market has huge potential in China, as
Chinese forex holdings are growing rapidly.
Rampant illegal policy sales in recent years by Hong Kong-based
insurance companies on the mainland, especially in wealthy regions
such as Guangdong
Province and Shanghai, have demonstrated the demand for forex
insurance policies. The illegal forex-denominated life insurance
products typically promise higher returns.
"But with the government's crackdown continuing, and supervision
improving gradually, I believe that business will come back (to
mainland insurers)," Taiping Life's Xie said.
The mainland authorities have been cracking down on the illegal
sales by Hong Kong-based insurers, warning local residents that
their purchases are not protected by local laws. Mainland insurers
are now allowed to sell forex-denominated personal accident
policies, but not life products.
(China Daily June 24, 2004)