China insurance watchdog warns sector of cash crunch, low returns

SHANGHAI - Some Chinese insurers may face a cash crunch this year as many policies mature, and as the sector faces sliding investment returns and rising costs, the China Insurance Regulatory Commission (CIRC) said.

Insurance companies need to broaden their investment channels to improve their returns, the CIRC said late on Thursday in its annual work report. The commission said it would also promote reform on the launch of infrastructure and real estate debt projects and introduce new types of investors.

"We see many more difficulties in ensuring steady growth of the insurance industry this year due to a comparatively lower investment return rate and the imminent peak of due payments on policies," Xiang Junbo, the commission's chairman said in the report.

With existing average investment returns for insurers being lower than the interest rate of five-year deposits, more policyholders are expected to surrender their policies - a trend which may cause a number of insurers to face a cash crunch, the CIRC said.

After enjoying an average growth of more than 20 per cent in the past two decades, China's insurance premium income slowed to single-digit growth in 2012.

The premium income increased 8 per cent to 1.55 trillion yuan (S$306 billion) last year, with health insurance premiums leading the growth, the commission said, while total assets of the insurance industry jumped 22.29 per cent on year to 7.35 trillion yuan.