Insurance companies could provide support for Chinese property market

The China Insurance Regulatory Commission said it hopes to receive permission from the State Council to let domestic insurers move more of their investment portfolios into property and infrastructure projects. Insurers have already been allowed to make selective investments in the infrastructure sector from early 2006. Now, however, insurers may also be allowed to invest in properties as investments aside from only purchasing properties for their own use, as was the case previously.

Insurance companies build up large investment portfolios as each year they collect more in insurance premiums than they pay out to meet the demands of their insurance policies. Up until now, most of this money has been invested in bonds and equities. However, with the equity markets so volatile over the past year, and in addition still weak, insurance companies may be looking for more flexibility to diversify their investments.

With another potential source of funds for the domestic property market, a change in regulations to allow insurers to invest in property should, at the margin, be supportive of domestic property prices. Perhaps that is why listed property shares have been rallying in recent days.