On 22 October 2012, the China Insurance Regulatory Commission (CIRC) issued the long-awaited Implementation Measures to the Provisional Measures for the Overseas Investment with Insurance Funds (Implementation Measures).
The Implementation Measures introduce two significant developments. First, they specify the qualification requirements for a “Foreign Delegated Person” licence which is needed to manage the offshore investments of China’s insurance funds. Prior to the issuance of the Implementation Measures, the qualification requirements, particularly in relation to assets under management (AUM) of a foreign manager, were not spelled out. As a result, the CIRC had not issued a “Foreign Delegated Person” licence for some years. Under the new measures, the AUM of the foreign manager’s group companies may be aggregated to fulfil the AUM requirements. Also, there are relaxed rules for foreign managers, known as boutique managers, who specialize in certain asset classes. The Implementation Measures open the door for global asset managers to obtain a licence to manage China’s insurance mandates.
The second significant development is the extensive expansion of the permitted offshore investments for insurance funds, both in terms of products and markets. Before the Implementation Measures, insurance funds could only invest in certain stocks and bonds issued or listed in Hong Kong. Insurers in the PRC can now invest in 45 of the world’s markets. The permitted investment products now cover money market products, fixed income products, equities including unlisted stocks in various industries, real estate, securities investment funds, private equity funds, REITs, and derivatives for hedging purposes. A securities investment fund is a permissible investment if it meets certain requirements such as having been approved by or registered with the securities regulatory authority in one of the 45 markets, having a track record of at least three years, and its manager meeting the requirements applicable to the “Foreign Delegated Person”.
The Implementation Measures are expected to result in a significant amount of insurance funds being channelled to offshore markets. Under the new rules, a PRC insurer is permitted to invest an amount not exceeding 15% of its total assets into overseas markets. Based on statistics released by the CIRC, PRC insurance assets as of the end of 2011 totalled about RMB 6 trillion, which means around RMB 900 billion (about US$145 billion) could be invested overseas this year. This development presents significant business opportunities for global fund managers and boutique managers.