(Yicai) Sept. 25 -- More Chinese insurance companies are keen to establish private equity investment funds, as they can have a positive effect on their balance sheets by easing profit fluctuations and aiding solvency. China’s financial regulators have said they will extend support for insurance firms to set up long-term private equity investment funds.

"We want to strive for this qualification," a senior executive at a large insurance company told Yicai. And many other insurers have also shown a strong interest.

"After the implementation of the new accounting standards, capital market fluctuations have a relatively large impact on companies’ profit and loss statements,” the executive said. “Private equity funds can reduce this impact. This is also in line with our long-term investment strategy."

The pilot reform of long-term investment of insurance funds to set up private equity investment funds will be expanded to support other qualified insurance institutions, Li Yunze, director of the State Financial Regulatory Administration, said at a press conference yesterday.

Regulators started to call on insurers and other long-term fund managers at the end of last year to step up their allocations in stocks to inject new life into the country’s stock market.

In November last year, two large insurers jointly set up a private securities investment fund for the first time. China Life Insurance and New China Life Insurance said they were seeing up a CNY50 billion (USD7.1 billion) private equity fund for long-term investment in the mainland stock exchanges. The fund is operating smoothly, Li said.

Their investment can be classified as long-term equity investment which is measured using the equity method, analysts said. This can reduce the impact of short-term fluctuations in equity assets on profits and spur enthusiasm of insurance funds to enter the stock market, analysts said.

If policies adjust the risk factors related to solvency requirements, this may also have a positive impact on the solvency of pilot insurance companies, according to Yicai research.

Editor: Kim Taylor