More Chinese insurers expected to set up AMCs next year

China is expected to allow more insurance firms to set up asset management subsidiaries next year after regulators ended a five-year hiatus by approving such a move for Sino-Life last week.

The nation’s eighth largest life insurer was granted permission by the China Insurance Regulatory Commission to start preparatory work on its asset management subsidiary, with the process forecast to be completed before the end of the third quarter of 2011.

Sino-Life AMC will become China’s 10th insurance asset management firm, and soon should be overseeing the investment of its parent company’s assets, which stood at Rmb28 billion at the end of 2009.

In addition, Sino-Life has already secured a qualified domestic institutional investor (QDII) licence, with a Rmb9 billion quota, raising the prospect that the firm will begin exploring offshore investments soon after its establishment.

Domestic insurers collectively constitute the largest single block of institutional investors in China, with total investable assets projected to reach Rmb5.75 billion by the end of 2011, notes consultancy Z-Ben Advisors.

Barred from entering the mutual fund industry in China, many top-tier insurers started to establish their own in-house investment subsidiaries in 2005, many of which have now evolved into the role of CIO.

The approval of Sino-Life AMC could be a signal that more such entities will be set up next year, suggests Z-Ben.

Regulations require an insurer to have net equity of Rmb1 billion, total assets of Rmb5 billion and eight years of operating experience. Based on these criteria, three additional insurers qualify – Sinosafe General Life, Minsheng Life and Generali China Life.

It is rumoured that these three insurers have already applied for licences to set up their own subsidiaries, says Z-Ben. If the eight-year operation requirement is waived, two more insurers would be able to apply for licences as well.

In addition to managing the parent group’s investments, insurance AMCs are allowed to manage enterprise annuity (corporate pension accounts) as well as investments of smaller insurers that have yet to establish their own AMC, Z-Ben points out.

“Therefore it goes without saying that insurance AMCs should be on speed dial of any asset manager hoping to source mandates from insurers,” suggests Francois Guilloux, Z-Ben’s director of regional sales based in Shanghai.

He notes that the capabilities of China’s nine existing insurance AMCs vary. Those of top-tier firms have teams specialising in traditional asset classes as well as alternatives such as private-equity and infrastructure investment, both in China and overseas; while smaller subsidiaries tend to focus on equity investments in domestic markets.

“That said, recent liberalisation, which widens their investment scope, combined with the fact that many insurance firms are under pressure to deploy their rapidly accumulating premiums in uncorrelated asset classes, means that most AMCs will soon begin to explore alternative investments,” says Guilloux.

“Against this backdrop, foreign asset managers must start thinking outside the box if they are to gain insurers’ attention.”