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Insurers facing bigger risks from more choice

AS insurers get to enjoy bigger returns from investing in debt and infrastructure they are also opening themselves to bigger risks from these investments, analysts said yesterday.

The China Insurance Regulatory Commission said in an online statement on late Tuesday that insurers will be allowed to expand investments in the debt market, including an increase in the investment limit on bonds related to infrastructure projects, letting them buy local government debt and non-guaranteed medium-term notes issued by non-financial corporations. The commission said it would also allow insurers to purchase Hong Kong-issued debt by state-owned companies.

"Insurers can enjoy bigger returns with more investment channels but they also face bigger risk exposure," Xiao Zhaohu, an analyst at Everbright Securities Co, said yesterday.

Analysts said tighter risk control and corporate governance are important when insurers have more leeway in determining their investment options. Previously, the bulk of their investment were from stable but low-return bank deposits and government bonds. Bonds accounted for 60 percent of insurance investment.

"Big insurers with strong risk control and own large assets can leverage the new channels better," said Luo Yi, a China Merchants Securities Co analyst.

The expanded investment channels for insurers are in line with the central government's moves to boost he financial industry. Local governments plan to issue 200 billion yuan (US$29 billion) of debt this year while corporations are also asked to issue bonds to raise capital to weather the economic slowdown.

Insurers with a solvency ratio, which measures an insurer's ability to settle claims, above 120 percent in the latest two financial years are allowed to buy bonds related to infrastructure projects.

The regulator is also closely supervising insurers' stock investments. Chinese insurers without a 100-percent solvency ratio for two straight quarters are banned from raising their investments, it said.


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