China’s financial regulator announced on 8 April that it was raising the cap on equity investments by insurance funds, as part of measures to adjust regulations on insurance fund utilisation to enhance the insurance sector’s role as a source of long-term, patient capital for the country’s economic and social development.
The adjustment, outlined in a circular issued by the National Financial Regulatory Administration, aims to broaden investment channels for insurance funds and inject more equity capital into the economy through equity investments in strategic emerging industries, reported Xinhua News Agency.
Under the new regulations, the upper limit for equity asset allocation would be 30-40%. If insurance funds invest in equities to the ceiling, they would inject an estimated incremental inflow of CNY1.66tn ($228bn) into the market. As of the end of 2024, the actual allocation of insurance funds to “stocks + securities investment funds” ranged between 10% and 20%, indicating considerable room to reach the investment cap.
Furthermore, as of the end of 2024, the total balance of insurance funds stood at CNY33.26tn, of which stock investments by life insurance companies amounted to CNY2.27tn.
Long-term stock investment pilot
In a related development, the second phase of insurance funds has entered a pilot scheme involving long-term stock investments. This increased the amount of insurance funds in the pilot scheme to CNY162bn from CNY50bn previously. The number of insurance companies participating in the pilot rose to eight from two, all of which are life insurance companies.
The long-term stock investment pilot refers to insurance companies investing in the establishment of private equity funds and investing in secondary market stocks and holding them over the long term. It is part of the government’s efforts to get insurers to support the country’s struggling stock markets.
The pilot scheme began in October 2023. The first batch of companies approved for the programme were China Life Insurance and New China Insurance. The two companies each invested CNY25bn to establish Honghu Zhiyuan (Shanghai) Private Equity Securities Investment Fund Co. It was established on 29 February 2024 and started investment activities on 4 March the same year.
The new participants in the second batch of insurance companies are Tai Ping Life Insurance, Taikang Life Insurance, Sunshine Life Insurance, PICC Life Insurance and Ping An Life Insurance. They invested a total of CNY92bn.
In addition, China Life and New China invested another CNY20bn to set up Honghu Fund II in this second phase. This means that the second phase raised a total of CNY112bn.
One advantage of investing in stocks over the long term is that the related accounting method helps insurers to smoothen the impact of equity market fluctuations on their net profits. Under new accounting standards, such assets can be stated at fair value and the changes in the fair value can be reflected as gains and losses that do not directly impact net income but are included in the overall comprehensive income of the insurance company. A