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Beijing mulls letting insurance groups invest offshore again

Chinese insurers, hard hit by a sweeping crackdown this year, are anticipating an opening in the market for overseas investments in 2018.

China’s insurance sector has been the target of regulatory tightening over the past year, aimed at curtailing companies’ access to foreign investments.

Several groups have been banned from selling high-risk, high-return products that have helped fuel extravagant overseas investments. The leaders of some companies have been investigated or, in the case of Anbang Insurance chairman Wu Xiaohui, detained.

However, as China’s foreign exchange reserves stabilise after falling below $3tn early this year, the top investment managers at some of China’s largest insurance groups say they are planning more overseas investments in 2018.

“Regulators have signalled to insurers that they will relax restrictions on overseas investment next year,” said the chief financial officer of a large Chinese insurance group. “We plan to increase allocation into alternative investments overseas, with a focus on healthcare and industrial assets.”

The talk of relaxation comes even as the China Banking Regulatory Commission reviews the systemic risk presented by the offshore dealmaking of some of China’s most aggressive acquirers, including Anbang Insurance.

The drainage of more than $1tn in Chinese foreign reserves starting in August 2015 pushed the State Administration of Foreign Exchange to tighten capital controls — including a requirement that government agencies sign off on foreign acquisitions valued above $10bn — starting late last year.

Reserves have since recovered to $3.05tn in May, the fourth consecutive month of growth. There are also recent signs that curbs on foreign investments are lightening.

“It has been very hard for us to get quota to invest overseas during the past year,” said Chen Yijiang, head of investments at New China Life Insurance, one of China’s largest life insurance groups. “But the pressure on foreign exchange has eased this year. [Because of that] we believe the regulators will make it easier for insurance companies to allocate overseas next year.”

The China Insurance Regulatory Commission allows insurers to allocate up to 15 per cent of total assets to foreign investments, although that figure remained low at just 2 per cent at the end of 2016.

As the sector grows, companies have become more desperate to diversify into other markets and asset classes, and away from China-based investments in equities and bonds.

A new survey of China’s largest insurers by Standard Life Investments reveals a continued strong interest to invest offshore.

About 64 per cent of the companies said they planned to increase allocation to international markets over the next three to five years. All of the insurers polled said they would boost allocation to private equity and infrastructure investment domestically and overseas.

Meanwhile, 33 per cent said they would reduce allocation to Chinese sovereign and corporate bonds in the coming years.

“We see this trend because insurers are hoping Safe will rescind the limitations on quotas for overseas investments,” said David Peng, investment director and head of Asia at Standard Life Investments, noting that there were early signs that Safe could relax some cross-border investment controls in late 2018.

Chinese insurers have already become some of the largest private equity investors in the region. China Life Insurance, for example, had allocated nearly $10bn to private equity by the end of 2016, according to Preqin, the data group.