Insurers to go big on investments in overseas markets

An outlet of BNP Paribas in Paris, France. (Photo provided to China Daily)

Survey finds many reasons behind companies' plans to diversify assets

China's insurers are keen to step up overseas investments in the next five years, a survey has found.

BNP Paribas surveyed 12 leading domestic insurers and found they are eager to diversify assets and hedge risks, and are looking at opportunities beyond popular options like real estate, listed stocks and private equity.

Among the surveyed are joint ventures and senior executives. The respondents said insurers' overseas investments are still at an early stage. On average, only 2 percent of their investable capital is invested overseas.

China's insurers are expected to have assets in excess of 12 trillion yuan ($1.74 trillion) by this year-end, according to data of the China Insurance Regulatory Commission.

It is estimated that China's insurers will have a total asset balance of around 20 trillion yuan by 2020.

So, insurers will likely invest some $100 billion in overseas markets by 2020, or 2.7 times that by 2015-end.

China's insurance regulator has stipulated that domestic insurers' overseas investments shall not exceed 15 percent of their total asset balance by latest year-end.

The current level (around 2 percent) is far below this level, suggesting there is great potential for growth, the research report said.

About 55 percent of respondents said they would like to increase overseas investments to somewhere between 5 percent and 10 percent by 2020. That would signify significant growth, the research report said.

Some 45 percent of respondents said they would like to increase overseas investments to somewhere below 4 percent, which reflects a prudent sentiment.

Reasons abound as to why insurers are looking at overseas markets: asset diversification, hedging of risks, higher returns, a balanced debt ratio and a larger global footprint.

"Overseas investments will help us to obtain assets we don't have in the domestic market. For example, assets of groundbreaking technologies, and assets in the sports industry," the research note quoted a senior executive respondent from Shanghai-based ICBC-AXA Life Insurance Company as saying.

Phillip Benoit, head of the APAC market, BNP Paribas, said: "Like their global peers, China's insurers are looking at overseas markets to diversify their investments, hedge risks, and gain stable and steady income. But considering the uncertainty in global markets, currency risks and many other factors, China's insurers are both aspiring and prudent."

He said while the United States is still the most popular investment destination, Europe has a lot of good opportunities to offer with a number of undervalued assets.

China's insurers need to build up their in-house capacity to allocate these opportunities. Also, they should seek professional help to prevent regulatory risks and get local know-how before entering an overseas market, Benoit said.

A separate research note from Z-Ben Advisors, an asset management research and consultancy services provider, said the China Risk-Oriented Solvency System, which was implemented at the beginning of this year, encourages insurers to improve their risk management, giving them one more reason to look for good assets in global markets.