China has allowed insurers to buy equities of non-listed companies to expand their investment channels, the insurance regulator said yesterday.

The State Council has given the go-ahead for insurers to invest in equities of non-public companies and the China Insurance Regulatory Commission is working on relevant rules on a trial scheme, said Yuan Li, a spokesman of the industry regulator, yesterday in Beijing during a press briefing on its third quarter.

The scheme will first be open to qualified insurers strong in risk control as "every coin has two sides" -- the scheme can expand investment options of insurers but may also expose them to higher risks, he said.

Yuan declined to disclose how much of insurers' assets, or what proportion, can be put into the scheme.

The regulator will also allow insurers to invest in the real estate market by buying commercial projects and earn returns through rents.

Insurers chalked up only 2.1 percent in their investment returns in the first three quarters due to the slump in the domestic stock market. Insurance investment capital rose 7.6 percent in the first three quarters to 2.88 trillion yuan (US$421.97 billion), of which 24.5 percent were bank deposits, 57.6 percent was put in bonds while stocks, and stock-investment funds accounted for 14.2 percent.

"Insurers haven't lost money via their direct investment in the stock market. However, they did lose from their stock-related fund investment," Yuan said.

The key Shanghai Composite Index has shed more than two-thirds from its peak of 6,124 points in October 2007.

The regulator will not ban insurers from investing overseas, even though Ping An Insurance (Group) Co has reported losses due to its Fortis investment.

"We won't prohibit further overseas investment just because we have seen losses," Yuan said. "But we will also advise the industry to make prudent moves when they invest overseas amid the current global financial landscape."

The regulator has formed a special team to closely watch the impact, check risks of all insurers and boost the monitoring of cross-border insurance capital flows.

(Shanghai Daily November 9, 2008)