China fund managers set for insurance boom

Chinese securities and fund management firms face the enticing prospect of expanding their institutional books of business on the back of regulatory change to the nation’s insurance industry.

This week the China Insurance Regulatory Commission (CIRC) moved to allow insurers to outsource investments in bonds, equities and collective funds for the first time, effective immediately.

This will give asset managers which are facing a challenging operating environment a much-needed opportunity to manage new mandates from an industry that has been growing rapidly.

The industry’s AUM climbed 18% year-on-year to Rmb6.78 trillion ($1.07 trillion) as at the end of June, according to CIRC data. Of this, Rmb3.92 trillion is for investment purposes, with the rest sitting in bank deposits.

In making its announcement this Monday, the regulator notes that while “most small-to-medium sized companies’ insurance business have been developing rapidly, their investment capabilities are not sufficient and they urgently need help from professional asset management institutions with sound risk management”.

To qualify, a securities firm must have at least three years’ experience in managing client assets and AUM of at least Rmb10 billion from institutional clients or Rmb5 billion from collective funds business over the past year. CICC, Citic Securities, Shenyin Wanguo, Guotai Junan and Haitong are qualified.

For fund managers, they should have more than three years’ experience in managing segregated account business and an asset balance of at least Rmb10 billion (excluding money market funds) in the past year. At present 33 of the 68 FMCs in China are eligible.

Historically, only insurance asset management companies (IAMCs) with minimum registered capital of Rmb100 million, AUM of Rmb10 billion and at least one year operating history as a trustee were allowed to manage this capital. There are presently nine qualified IAMCs, mostly backed by large life insurers such as PICC, China Life and Ping An.

Besides bonds, equities and mutual funds, insurance companies can also authorise trustees to adopt forwards, swaps, options and futures, but only for hedging purposes.

Insurance companies which issue mandates are required to submit quarterly (within 30 days after the quarter ends) and annual reports (by April 30 each year) to the CIRC.

They must also notify the regulator within five working days when they change investment trustees or custodians, or when major events such as an administrative penalty or litigation occur.

The entry of securities companies and FMCs would make the arena for managing insurance assets far more competitive than it has been. PICC was the first IAMC approved by the CIRC in 2003, and there are now 17 such firms.

With deregulation gathering pace since last year, more players are expected to enter this field.