Detailed Rules Expected for PE Investment of Insurers

China's insurance industry regulator is expected to release detailed rules for domestic insurance institutions to make investments in equities of non-listed companies.

According to China Insurance Regulatory Commission (CIRC), China's insurance institutions are allowed to use not more than 5% of their total assets by the end of the previous quarter for the private equity investment. As of June 2010, these insurers had total assets of CNY 4.52 trillion, based upon which, up to CNY 226 billion will be available for them to make PE investment.

Actually, insurance institutions are understood to be qualified institutional investors to make such investment, as they have a large amount of capital and usually, they make the long-term investment. Still, the insurers are not allowed be engaged in the venture capital investment. Comparatively speaking, the VC investment refers to the initial investment while the PE investment refers to the Pre-IPO investment. That is the difference between them.

CIRC is understood select some well-operated insurance institutions with strong capability of risk control to make the private equity investment on a trial basis. Currently, leading insurers like China Life Insurance Co. (601628.SH) and Ping An Insurance (Group) Company of China have already had their own direct equity investment units. As for the marketization, the attitude of insurers remains a puzzle.

CIRC is also going to further encourage domestic insurers' realty investment by specifying that the country's insurance institutions can use not more than 5% of their last-yearend assets for investing in realty, equities of non-listed firms or industrial funds. By the end of last year, the nation's insurance sector had total assets of CNY 4.1 trillion, which included CNY 390.46 billion net assets. Based upon the maximum proportion of 5%, these insurance companies will have a total of CNY 205 billion available for realty investment.

Actually, such insurers as China Life, Ping An, People's Insurance Company (Group) of China Limited, China Pacific Insurance (Group) Co. (601601.SH) and China Taiping Insurance Group Co. have already started research on real estate projects via their assets management arms. Based in Beijing as the biggest life insurer of China's Mainland, China Life wholly owns China Life Tower, which is located in Chaoyang District, Beijing. As a multi-purpose building with the functions of office, catering and amusement club, China Life Tower covers total areas of 10,000 square meters. Currently, the rental of the building is as high as CNY 220/square meter per month.