Insurers become second largest institutional investor in China’s securities market

BEIJING, Oct. 31 (CEIS) -- Insurance companies have become the second largest institutional investment sector in China’s securities market after the commercial banks after just eight years of trading.

BEIJING, Oct. 31 (CEIS) -- Insurance companies have become the second largest institutional investment sector in China’s securities market after the commercial banks after just eight years of trading.

The People’s Bank of China (PBOC), the central bank, on Monday published a report on the country’s financial situation, saying insurers had directly invested 15.89 billion yuan (1.99 billion U.S. dollars) in stocks by the end of 2005.

Insurers were allowed to invest in the securities market in 1998, when they were confined to dealing in AA bonds of state-owned enterprises (SOE).

Now insurers can invest in many kinds of bonds and securities, but with no more than 20 percent of their assets.

The report said the reform of the insurance industry had made great progress with corporate governance well established, while 40 firms had been transformed from state-owned to listed companies.

“With investment channels expanded, many large insurance companies have strengthened corporation with banks by taking shares in the banks,” said the report.

The report also said the country should speed up efforts to set up the deposit insurance system to hedge the financial risks long-term.

Under the system, financial institutions pay premiums to insurers, who, in case the institutions face crisis, would repay a portion to the institutions.

The deposit insurance system would play an important role in the country’s financial system because it helped cut the bonds between banks and fiscal departments and prevented runs on banks, said analysts.