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China Lifts Cap on Life Insurance Interest Rate

China Lifts Cap on Life Insurance Interest Rate

china-flagThe 2.5 percent pre-determined interest rates attached to life insurance products here in China have been scrapped.The move is the latest effort by central government to liberalize the country’s interest rates.The People’s Bank of China has already loosened its grip on bank lending rates.Under the new regulations, insurance companies can set their own rates to a maximum of 3.5-percent.The rigid 2.5 percent cap left much of the insurance products on offer here in China much the same.
China’s top insurance regulator officially abolished its 2.5 percent interest rate limit on standard life insurance products Monday, allowing insurers to set rates on their products in line with market conditions.The China Insurance Regulatory Commission (CIRC) announced the impending arrival of this move in a notice posted Friday on its official website, effectively marking another step toward interest rate liberalization after the central bank removed controls on lending rates on July 19.In 1999, the CIRC imposed a 2.5 percent interest rate limit on standard life insurance products in order to minimize competition within the country’s budding insurance industry. As the market matured though, this limit eventually dampened investor enthusiasm for insurance products, She Minhua, an analyst from Zhong De Securities, told the Global Times.”Most clients hoped to generate stable profits from their positions in insurance products, but low returns have forced many to explore other investment channels,” She explained.Rate caps will remain in effect on dividend- and universal-type life insurance products, the CIRC’s announcement also stated.Standard life insurance products account for a relatively small portion of China’s total life insurance market, so the real impact of this latest play by authorities is unlikely to be felt immediately, She went on to mention.”The CIRC’s next step may be to free up rates on dividend-type life insurance products. Moving forward, the commission will be closely monitoring the performance of standard life insurance products to see whether taking the reins off interest rates elevates insurance company revenues,” said She.The assets of China’s insurance industry totaled 7.88 trillion yuan ($1.27 trillion) at the end of June, up 16.35 percent year-on-year.By market capitalization, the country’s top insurers include China Life Insurance, Ping An Insurance, China Pacific Insurance and the People’s Insurance Company (Group) of China.

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