GuShiio.com ① Allow 10 pilot insurance companies to carry out insurance funds to invest in gold business, which marks a further broadening of the channels for the use of insurance funds in my country.
② Investing in gold by insurance funds can bring many advantages such as risk dispersion, value preservation and appreciation, and strong liquidity, which helps to achieve diversified asset allocation and risk management.
Financial Union, February 7 (Reporter Wang Hong)The State Administration of Financial Supervision issued the “Notice on Carrying out the Pilot Project of Insurance Funds Investment in Gold Business”(hereinafter referred to as the “Notice”), allowing 10 pilot insurance companies to carry out insurance funds investment in gold business, but also required that the total book balance of pilot insurance investment gold should not exceed The company’s total assets at the end of last quarter. Experts said that this move marks a further broadening of the channels for the use of insurance funds in my country.
Industry insiders said that investing in gold by insurance funds can bring many advantages such as risk diversification, value preservation and appreciation, and strong liquidity, which will help achieve diversified asset allocation and risk management. Experts also pointed out that in the future, if gold is further combined with reinsurance and asset management products, a new “gold +” asset allocation model may be formed. However, experts also warned that gold prices are affected by many factors such as the US dollar and geopolitics, and insurance companies need to strengthen their market research and judgment capabilities.
The book balance of investment gold shall not exceed 1% of total assets
Specifically, the “Notice” pointed out that pilot insurance companies can carry out pilot investment in gold business for the purpose of medium and long-term asset allocation. The scope of pilot investment in gold includes gold spot firm contracts, gold spot deferred delivery contracts, Shanghai gold centralized pricing contracts, gold inquiry spot contracts, gold inquiry swap contracts and gold leasing business listed or traded on the main board of the Shanghai Gold Exchange.
The pilot participants include: People’s Insurance Company of China, China Life Insurance Company, Taiping Life Insurance Company, China Export Credit Insurance Company, China Ping An Property Insurance Company, China Ping An Life Insurance Company, China Pacific Property Insurance Company, China Pacific Life Insurance Company, Taikang Life Insurance Company, Ltd., and Xinhua Life Insurance Company.
Tian Lihui, dean of the Institute of Financial Development at Nankai University, told reporters from the Financial Union that the “Notice” marks a further broadening of the channels for the use of insurance funds in my country and is also an important measure to deepen financial reform and optimize asset allocation. The policy is mainly to clarify that insurance funds can participate in seven types of products such as gold spot and firm contracts through the Shanghai Gold Exchange. This design covers both the spot and derivatives markets, as well as asset allocation and risk management needs.
The “Notice” also requires that pilot insurance companies should strictly implement the investment ratio requirements, and the total book balance of investment gold should not exceed 1% of the company’s total assets at the end of the previous quarter. Tian Lihui believes that this ratio not only controls risks, but also reserves space for subsequent adjustments. The policy also clarifies risk management requirements.
The industry looks forward to a new “gold +” asset allocation model
A reporter from the Financial News Agency noticed that policies related to insurance investment in gold have been “leaked”. On June 19, 2024, Li Yunze, director of the State Administration of Financial Supervision and Administration, stated that he would actively explore pilot investment of insurance funds in gold contracts and related products on the Shanghai Gold Exchange. On February 6, 2024, the relevant plan issued by the Shanghai City People’s Government proposed to support relevant business entities in the Shanghai Pilot Free Trade Zone to carry out pilot projects such as insurance funds to invest in gold and other bulk commodities under the guidance of the national financial management department.
Tian Lihui analyzed that the “Notice” has three positive impacts from a strategic perspective: optimizing the allocation structure of insurance funds, promoting the construction of Shanghai’s international financial center, and guiding long-term funds to serve the real economy.
“Previously, insurance funds mainly participated in the gold market indirectly through gold stocks, but such assets were highly volatile and were weakly correlated with gold prices.” Tian Lihui said that direct investment in gold can enhance the anti-inflation and hedging functions of asset portfolios, especially in the current context of increasing global economic uncertainty, the role of gold as a “ballast stone” has become prominent. At the same time, the pilot relies on the Shanghai Gold Exchange, which is in line with the State Council’s 2023 proposal to “support insurance funds to invest in bulk commodities in the free trade zone”, further consolidating Shanghai’s position in the global gold market and helping it become an international reinsurance and asset management center. Moreover, businesses such as gold leasing can provide liquidity support to industrial chain enterprises and promote the integration of industry and finance. At the same time, the long-term characteristics of insurance funds help stabilize short-term fluctuations in the gold market and enhance market depth.
It is worth noting that gold prices have continued to rise in recent years, and gold prices will hit 40 new highs in 2024. The strategic significance behind gold has attracted more and more attention. Zhang Yu, an analyst at Huachuang Securities, said that an important factor driving the continued rise in gold prices is the restructuring of the global order. The logic behind it is that when the global order is restructured, the old order is gradually weakening, the new order is emerging, and the game between the two sides is still unclear, gold is often the better choice.
Insurance industry insiders said that investing in gold by insurance funds can bring many advantages such as risk dispersion, value preservation and appreciation, and strong liquidity, which will help achieve diversified asset allocation and risk management.
Tian Lihui also believes that the supervision will clearly “closely track the progress of the pilot” and may gradually expand the scope of pilot institutions, relax proportional restrictions or introduce more derivative instruments in the future. In addition, if gold is further combined with reinsurance and asset management products, or a new “gold +” asset allocation model is formed.
“Overall, this measure has opened up new space for the coordinated development of the insurance industry and the gold market, and also provided a new window for global investors to observe the process of China’s financial opening up. This pilot is an important step in the reform of the financial supply side. It not only responds to the demand for diversified allocation of insurance funds, but also avoids potential risks through strict risk control design.”Tian Lihui also reminded that two points need to be paid attention to: First, gold prices are influenced by many factors such as the US dollar and geopolitics, and insurance companies need to strengthen their market research and judgment capabilities; Second, the 1% quota has limited impact on the market in the short term, and the long-term effect depends on the pace of policy opening and market acceptance.
