Qualified Insurers Allowed to Make Realty Investment

Insurance institutions of China are estimated to have about CNY 1.5 trillion for making investment in the realty, private equity and other permitted sectors.

The interim measures of China Insurance Regulatory Commission (CIRC) on the realty investment and private equity investment provide new investment channels to the country's insurance institutions.

By the end of this June, the utilization balance of insurance capital stood at CNY 4.17 trillion, a rise of 11.3% compared to the start of 2010. Of these, the bond investment accounted for 51.8%; the bank deposits accounted for 30.5%; the investment in funds, stocks and equities accounted for 15.1%; and other kinds of investment accounted for 2.6%.

Actually, Chinese insurance institutions during 2006 the end of 2009 purchased 1.2-million-square-meter office buildings in the name of self use. With the total investment of about CNY 20 billion, up to 10 domestic and foreign insurers have set foot in the real estate investment sector of China. For example, Shanghai's Lujiazui Financial Street currently has accommodated China Insurance Tower, Sino Life Tower, China Ping An Financial Tower and Pacific Financial Tower.

China Insurance Group is the owner of China Insurance Tower, the rental of which is CNY 8.5 per day per square meter. Ping An Insurance (Group) Company of China Limited is the owner of China Ping Am Financial Tower, the rental of which is CNY 11.5 per square meter per day.

In order to diversify the way of investment for foreign insurers as well, they can also be allowed to enter the realty investment sector as long as they follow the Chinese laws and regulations. Still, the procedures will be complicated and these foreign players might not choose such a way of making investment in China.

Under the regulatory rules, these insurance groups or companies could invest in infrastructure realty and related financial products via the bond investment or equity investment. These include the commercial realty, office realty and others for self-use purpose. Available amount of investment shall not exceed 10% of an insurer's total assets by the end of the previous quarter.

Actually, the threshold is high. An insurer has to have the solvency adequacy ratio of not lower than 150% by the end of the previous quarter and the previous year; it has to make profits during the previous fiscal; and the company has had at least CNY 100 million in its net assets. Based upon this, only several leading firms are qualified to make such investment at the initial stage.