Insurance fund established to save listed companies from liquidity risk

China Life Asset Management Co Ltd set up the industry's first special product to participate in defusing the liquidity risk of stock pledges of high-quality listed companies, according to a report by Economic Information Daily.

The special product, with a target size of 20 billion yuan, completed registration at the China insurance asset registration and trading system on Monday.

It will use flexible and diversified investment methods such as equity investment and bond investment to provide financing support to high-quality listed companies with promising market and technological advantages that are facing temporarily liquidity difficulties due to fluctuations in the capital market or equity pledge, the company said.

A number of large insurance capital management companies are also planning to set up such special products to give full play to the advantages of long-term stable investment of insurance funds, to help the healthy development of the financial market, the report said.

The China Banking and Insurance Regulatory Commission (CBIRC) also confirmed some insurance asset management companies are prepared to conduct intensive investigation on relevant listed companies, communicate with potential subscribers and design special products, according to the report.

As China's financial market has experienced considerable fluctuations recently, regulators' attitude to encourage insurance funds to get involved in the long-term investment is becoming more and more obvious and measures to guide long-term funds such as insurance funds into the market are accelerating.

Vice-Premier Liu He said on Oct 19 that to encourage long-term funds to enter the market, insurance funds' financial and strategic investments on high-quality listed companies should be strengthened, the power of institutional investors should be strengthened and the foundation of long-term investment in the market should be consolidated.

On the same day, Guo Shuqing, chairman of the CBIRC, also said that the advantages of insurance funds on long-term stable investment should be given full play and insurance funds should be allowed to set up special products to participate in defusing the liquidity risk of stock pledge of listed companies without being included in the supervision of equity investment ratio.

Subsequently, a series of policy to promote insurance funds entering the market were launched one after another.

The CBIRC data showed the balance of insurance fund was 15.87 trillion yuan as of the end of September, while the scale of investment in stocks and funds were 1.30 trillion yuan and 0.89 trillion yuan, respectively, accounting for 8.17 percent and 5.58 percent of the balance of insurance fund.

There is still an investment space of 2.57 trillion yuan according to the investment limit of 30 percent.

The proportion of investment allocation of insurance companies in equity category is still relatively low, far from 30 percent, so the allocation space is still very large, Zhu Junsheng, deputy director of the Insurance Research Department of the Development Research Center of the State Council, said.

However, insurance funds usually have requirements on security and a minimum guaranteed interest rate, so insurance companies would comprehensively consider whether they have the relevant investment capacity, a sound risk management capacity and control capabilities, Zhu said.

"But the current trend shows there will certainly be more insurance funds to enter the market," he added.