Infrastructure Projects: A New Frontier for Insurance Funds Investment

By Lü Guoming*, Dr Xu Guojian and Pek-Siang Tee, Boss & Young, Shanghai

Since the promulgation and implementation of the PRC Insurance Law (Insurance Law)(中华人民共和国保险法) in 1995, which imposes stringent restrictions on the ways insurance funds are to be utilized, China's insurance industry has been developing disproportionately, with the insurance funds utilization sector being much smaller and weaker than its insurance business counterpart. After the Insurance Law was amended in 2002, the State Council and the China Insurance Regulatory Commission (CIRC), have been painstakingly trying to identify more lucrative and safer means for handling insurance funds. Compared with the developmental speed of the insurance industry - an annual average rate of growth of 30% in recent years - the utilization of funds has been far from sufficient due to insurance funds utilization being limited to investments in the financial market and moreover, in interest-earning products with low returns. Therefore, it is not surprising that insurance companies have been calling for broader investment channels to diversify risks and boost returns. In response to such calls by insurance regulatory authorities, the CIRC issued the Measures for the Administration of Pilot Programme for Indirect Investment in Infrastructure Projects with Insurance Funds (Measures), promulgated and effective on March 14 2006.

Summary of legislative framework