To stabilize and invigorate the capital market, Li Yunze, Director of the National Financial Regulatory Administration, announced at a press conference held by the State Council Information Office on May 7 that three incremental policies would be launched in the near future to encourage insurance funds to enter the market and achieve "long-term capital for long-term investment."
Firstly, the scope of long-term investment trials for insurance funds will be further expanded, with an additional 60 billion yuan expected to be approved shortly, introducing more incremental funds into the market. Secondly, the solvency regulatory rules will be adjusted to further reduce the risk factor for equity investments by 10%, encouraging insurance companies to increase their market participation. Thirdly, efforts will be made to improve the long-term assessment mechanism to mobilize the enthusiasm of institutions.
Chen Hui, Director of the China Actuarial Science and Technology Laboratory at the Central University of Finance and Economics, stated in an interview with a reporter from Cailian Press that insurance funds are characterized by their liability-driven, long-term, and stable nature. These characteristics determine that the safety of insurance fund investments is fundamental, that term matching is a requirement, and that return coverage is the goal.
"Further expanding the scope of long-term investment trials for insurance funds is a win-win measure. On the one hand, the low-interest-rate environment requires the insurance industry to adhere to long-term principles and achieve deep asset-liability linkage. On the other hand, the characteristics of insurance funds can assist the country in improving its counter-cyclical adjustment mechanisms and cross-cyclical policy designs," Chen Hui said.
A relevant person from China Life Asset Management stated to a reporter from Cailian Press that under the framework of the second phase of the Solvency II project, the market risk factors for long-term equity investments and certain equity investments are relatively high, consuming more capital and leading to a decline in the company's solvency, which has become one of the factors restricting insurance funds from entering the market. Further reducing the risk factor for equity investments by 10% will open up more space for equity investments by insurance funds.
Meanwhile, Wang Guojun, a researcher and doctoral supervisor at the National Academy for International Development and Openness at the University of International Business and Economics, also pointed out that the capital market should also accelerate reforms and eliminate long-standing issues to achieve coordinated development with the insurance industry.
Increase Market Participation and Stabilize the Market: Proposed Approval of an Additional 60 Billion Yuan for Long-Term Investment Trials of Insurance Funds
Since 2023, regulatory authorities have been promoting the entry of medium and long-term funds, represented by insurance funds, into the market to support the stabilization of the capital market.
On March 4, 2024, China Life and New China Life Insurance jointly initiated the first private equity securities investment fund in China, "Honghu Zhiyuan," with a total scale of 50 billion yuan, officially commencing investments.
Currently, the first batch of 50 billion yuan in long-term equity investment trials for insurance funds has been fully invested. Combined with the approved amount from the second batch, the total scale of China's long-term equity investment trials for insurance funds has increased to 162 billion yuan, and the number of participating insurance companies has grown from 2 to 8.
Li Yunze introduced that the pilot reform of long-term investment by insurance funds in the early stage provided real incremental capital for the stock market. Last month, the National Financial Regulatory Administration (NFRA) further raised the upper limit of the investment ratio of insurance funds in equity-type assets, thereby releasing more investment space.
To continue supporting the stability and vitality of the capital market, the NFRA will expand the scope of the pilot program for long-term investment by insurance funds in the next step. It is planned to approve an additional 60 billion yuan in the near future to inject more incremental capital into the market.
In the view of Chen Wenhui, former vice chairman of the National Council for Social Security Fund, insurance funds, as one of the important sources of long-term capital, actively participating in the pilot program for long-term equity investment helps promote the development of national strategic emerging industries. In particular, it provides necessary financial support for technology innovation-oriented enterprises.
For example, in fields such as semiconductor chip manufacturing, artificial intelligence, and biotechnology, insurance funds' involvement in the form of private equity funds can not only alleviate the financing difficulties of enterprises but also promote the transformation of scientific and technological achievements into real productivity, effectively balancing economic and social benefits.
Adjusting solvency regulatory rules to further reduce the risk factor for equity investment by 10%
To promote "long-term investment with long-term funds" by insurance companies, Li Yunze stated that the NFRA will adjust solvency regulatory rules to further reduce the risk factor for equity investment by 10%, encouraging insurance companies to increase their participation in the market, promoting the improvement of long-cycle assessment mechanisms, and mobilizing the enthusiasm of institutions.
A relevant person from China Life Asset Management told a reporter from Caixin that this measure will, to a certain extent, reduce the capital constraints on insurance companies. Since 2023, listed insurance companies have begun to implement the new financial instruments standards, requiring them to choose between FVTPL and FVOCI for equity assets. Currently, listed insurance companies mainly invest in stocks under FVTPL, and stock market fluctuations have a significant impact on current net profits.
However, this issue can be moderately alleviated by adopting strategies such as long-term equity investment or high-dividend (OCI) strategies. Nevertheless, under the framework of the second phase of the Solvency II project, the market risk factors for long-term equity investment and some equity investments are relatively high, consuming more capital and thus leading to a decline in the company's solvency, which has become one of the factors restricting the entry of insurance funds into the market. Further reducing the risk factor for equity investment by 10% will open up more space for equity investment by insurance funds.
A relevant person from the Asset-Liability Management Department of Great Wall Life Insurance also stated, "The reduction in the risk factor for equity investment will alleviate the solvency pressure on insurance companies and help unleash the potential of equity investment by insurance funds in the secondary market. This is also an important policy to remove obstacles to the entry of medium and long-term funds into the market."
Capital replenishment for large insurance groups has been put on the agenda, with plans to orderly replenish the capital of small and medium-sized financial institutions through multiple channels.
Li Yunze introduced that currently, the various businesses of banking and insurance institutions are being carried out in an orderly manner, with major regulatory indicators all within a healthy range. The foundation of large financial institutions is stable, and their role as a "ballast stone" is evident. Significant progress has been made in the reform and risk resolution of small and medium-sized financial institutions at this important stage.
From the first four months, the capital adequacy ratio of banks and the solvency adequacy ratio of insurance companies have maintained a steady and improving trend. The non-performing loan ratio decreased by approximately 0.1 percentage point YoY, while the provision coverage ratio increased by approximately 10 percentage points YoY, continuously thickening the industry's safety cushion.
In addition, to accelerate the improvement of the regulatory system, the National Financial Regulatory Administration has revised and issued over 30 sets of regulations in areas such as corporate governance, regulatory ratings, and consumer protection. It has formulated opinions on high-quality development in the banking, insurance, and asset management sectors to enhance their specialized and characteristic development capabilities. It has guided the industry to further promote cost reduction and efficiency enhancement, further consolidating the foundation for sustainable development.
It is worth noting that at this press conference, Li Yunze also mentioned, "We will improve the capital replenishment mechanism. The capital replenishment work for large commercial banks is being accelerated, and capital replenishment for large insurance groups has been put on the agenda. Various regions are also orderly replenishing the capital of small and medium-sized financial institutions through multiple channels."
Chen Hui stated, "Capital replenishment is an important means to enhance risk resilience. For the insurance industry to better serve economic and social development, it not only requires funds but also capital. Large insurance groups, all being systemically important insurers, need to further replenish their capital to safeguard the bottom line of preventing systemic financial risks."
Supporting the development of foreign trade by providing precise services to market entities significantly affected by tariffs
Li Yunze introduced that in the first four months of this year, the banking and insurance sectors provided approximately 17 trillion yuan in new financing to the real economy through various means such as loans and bonds. Since the expansion of the policy on no-repayment loan renewal last September, a cumulative 4.4 trillion yuan has been renewed for micro, small, and medium-sized enterprises, better meeting their continuous financing needs.
The insured amount of short-term export credit insurance increased by 15.3% YoY, providing strong support for stabilizing foreign trade. From January to April this year, the insurance industry paid out approximately 1 trillion yuan in claims, with over 10 million vehicles insured under new energy vehicle insurance. Meanwhile, the long-term reserves accumulated by insurance companies for the people's pension and health insurance protection have exceeded 10 trillion yuan.
Wang Guojun, a researcher and doctoral supervisor at the National Academy for International Development and Openness, University of International Business and Economics, stated that through the data, it can be observed that the insurance industry is consciously integrating into the overall layout of China's modernization drive, returning to its roots, focusing on its main business, and effectively fulfilling its functions as an economic shock absorber and social stabilizer.
Next, the National Financial Regulatory Administration will roll out a package of policies to support the financing of micro, small, and medium-sized enterprises (MSMEs) and private enterprises as soon as possible. It will formulate and implement a series of policy measures for the banking and insurance sectors to support the development of foreign trade, providing targeted services to market entities significantly affected by tariffs, and offering comprehensive assistance to stabilize operations and expand markets.
Chen Hui stated that the adverse impacts of the current external environment are deepening, with some countries wielding the "tariff big stick." In addition to facing traditional foreign trade risks, foreign trade enterprises are also confronted with risks such as exchange restrictions, international sanctions, and exchange rate fluctuations. During this process, the insurance industry should further optimize export credit insurance and other measures in light of the changing risk characteristics of current foreign trade enterprises, thereby helping them mitigate both old and new risks.
