Warning of tight times ahead for insurers

Analysts warned on Monday that insurers' profit margins will be tighter this year, amid an environment of low interest rates and increased regulation to contain financial risks.

The China Insurance Regulatory Commission recently tightened its regulation of the ownership structure of the nation's insurers. The measure was taken to safeguard insurers' role in the capital market as long-term providers of protection rather than short-term speculators.

The regulator lowered the maximum stake in an insurer a single shareholder can own from 51 percent to 33 percent in recently released draft rules which are subject to public discussion.

The regulator also banned life insurers from opening new branches if short-term insurance policies account for more than 50 percent of their total premiums on a quarterly basis.

"Tighter regulation, together with the low interest rates, will further constrain the business growth of insurers. Bigger players will be less affected than smaller ones which may need to adjust their strategy accordingly," said Wei Tao, an analyst at BOC International Holdings Ltd.

Insurers' total premiums were expected to exceed 3 trillion yuan ($432 billion) in 2016, a 25 percent increase year-on-year, according to analysts' forecasts.

The outstanding value of investment by insurance funds had already exceeded 13 trillion yuan as of November.

Aggressive stake-bidding by insurance funds in the stock market has caught the regulator's attention, amid serious concerns that this trend will result in greater volatility which could endanger the broader financial system.

Shen Juan, an analyst at Huatai Securities Co Ltd, said in a research note that given the tighter regulatory control, insurers are likely to rely more on sales of traditional long-term insurance products and adopt less aggressive investment strategies to manage their funds.

The regulator's crackdown on high cash-value products will constrain the premium growth of life insurers this year, with insurers exposed to significant asset-liability duration mismatches facing a more acute challenge, according to credit ratings agency Fitch Ratings Inc.