China's insurance industry is facing investment pressure as regulations stipulate that an estimated 2 trillion yuan (US$295 billion) from new premium income needs to be invested this year, even as traditional channels are languishing.

The country's insurance sector had 4.17 trillion yuan worth of investments in stocks, equity funds, bonds and other assets by the end of June, up 11.3 percent from the start of the year, said Zhang Zhongning, head of the news department of the China Insurance Regulatory Commission (CIRC), at a press briefing in Beijing.

Returns on funds invested by the nation's insurers stood at 75.5 billion yuan in the first half of the year, a rate of return of 1.93 percent, according to Zhang.

Analysts said the recent global financial volatility has made it difficult for insurers to find proper investment channels, and limited domestic investment channels have made things worse.

"The increased pressure on asset allocation is due to the limited investment channels for insurers. But the regulators are unlikely to loosen the rules in the near term given the current volatility in the domestic capital markets," said Hao Yansu, an insurance professor at the Central University of Finance and Economics.

The insurance regulator has set limits on insurance company investments by allowing them to invest only 20 percent of their assets into stocks, equity funds and bonds. It has been reported that the regulator is considering loosening the limit but remains cautious on property and private equity investments. Industry insiders said the loosening may bring some 10 billion yuan into China's stock market.

China's insurance premiums rose 33.6 percent to 799.9 billion yuan in the first half from a year earlier.

Wu Dingfu, chairman of CIRC, said in a statement that changes in the country's macro economy and the turmoil in global financial markets have brought more uncertainties to the domestic insurance industry.

"The possible slowdown in auto sales and fixed-income investments as well as the removal of export tax rebates on some products will all directly impact the insurance demand in related industries," he said.

(China Daily July 20, 2010)