Industry News | The Ministry of Finance issued a notice to guide long-term and steady investment of insurance funds and strengthen the long-term assessment of state-owned commercial insurance companies

Following the notice issued by the State Administration of Financial Supervision in the early stage to reduce the risk factor of equity investment of insurance companies, on October 30, the Ministry of Finance issued the "Notice on Guiding the Long-term and Steady Investment of Insurance Funds and Strengthening the Long-term Assessment of State-owned Commercial Insurance Companies" (hereinafter referred to as the "Notice"), which implements a three-year long-term assessment of the return on net assets of state-owned commercial insurance companies. A number of industry insiders said that insurance funds are an important part of the medium and long-term funds in the capital market, and the implementation of long-term assessment of state-owned commercial insurance companies will help enhance their enthusiasm and stability in investing in equity assets such as stocks and funds, enhance the breadth and depth of their participation in the capital market, and promote the high-quality development of the capital market.

Notice on Guiding Long term and Stable Investment of Insurance Funds and Strengthening Long term Assessment of State owned Commercial Insurance Companies

Caijin [2023] No. 89

People's Insurance Group of China Limited, China Life Insurance (Group) Company, China Taiping Insurance Group Co., Ltd., China Reinsurance (Group) Co., Ltd., other relevant commercial insurance companies, finance departments (bureaus) of various provinces, autonomous regions, municipalities directly under the central government, and cities specifically designated in the state plan, finance bureaus of Xinjiang Production and Construction Corps, and regulatory bureaus of various regions of the Ministry of Finance:

In order to guide the long-term and stable operation of state-owned commercial insurance companies, better play the role of market stabilizer and economic development booster for medium and long-term funds, and strengthen the long-term assessment of state-owned commercial insurance companies, in accordance with the relevant provisions of the Notice of the Ministry of Finance on Issuing the Performance Evaluation Measures for Commercial Insurance Companies (Caijin [2022] No. 72, hereinafter referred to as the "Measures"), the relevant matters are hereby notified as follows:

1、 Adjust the "return on equity" of the operating efficiency indicators in the "Measures" from the "current year indicator" to a combination of "3-year cycle indicator+current year indicator". The 3-year cycle indicator is the "3-year cycle return on equity (with a weight of 50%)", and the current year indicator is the "current year return on equity (with a weight of 50%)".

Rn represents the return on equity for the current year, while rn-1 and rn-2 represent the return on equity for the first and second years respectively.

2、 State owned commercial insurance companies should carry out various investments in accordance with the law and regulations, comply with regulatory requirements for solvency, risk management, corporate governance, and other relevant regulations, and match their own investment management capabilities, risk control capabilities, and relevant qualifications. High risk state-owned commercial insurance companies that do not meet regulatory indicators such as solvency shall not engage in illegal investments in stocks.

3、 State owned commercial insurance companies should adhere to the principles of prudence, safety, and appreciation, balance investment returns and risks based on the long-term nature of insurance funds, optimize asset allocation, and reasonably determine investment targets, investment scale, term structure, and liquidity arrangements. Insurance funds should be invested in assets with controllable risks, stable returns, and stable cash flow returns, and should not be used for high-risk investments with unstable returns, high price fluctuations, and unstable cash flow.

4、 State owned commercial insurance companies should establish a specialized investment management system, establish transparent and standardized investment decision-making procedures, establish a scientific and effective investment risk assessment system, conduct due diligence and feasibility research on investment projects from aspects such as efficiency, safety, and liquidity, and further strengthen investment risk management, transaction management, and post investment management.

5、 State owned commercial insurance companies should effectively improve capital returns while reasonably controlling risks. If the net asset return assessment index during the evaluation period is lower than the industry standard value equivalent level, the management of state owned commercial insurance companies should promptly identify the specific reasons and adjust the investment direction and proportion reasonably; If the performance evaluation level is lower than the equivalent level in the industry standard value for three consecutive years, the financial department can dynamically adjust its performance evaluation level.

6、 State owned commercial insurance companies should calculate various investment returns in accordance with the law and regulations, effectively fulfill the responsibility of financial accounting information subject, and ensure the authenticity and reliability of performance evaluation data. If it is found after the annual evaluation that the relevant data is inaccurate and affects the evaluation results, the financial department can trace and adjust the evaluation results, and trace and adjust the results of other matters linked to the evaluation results.

7、 Other matters related to the performance evaluation of state-owned commercial insurance companies shall still be implemented in accordance with the relevant provisions of the Measures.

8、 This notice shall come into effect from the date of issuance. State owned commercial insurance companies shall follow the "Measures" and this notice from the performance evaluation of 2023, and other commercial insurance companies may refer to it for implementation.

Ministry of Finance

October 25, 2023