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China broadens insurers' investment channels

By Li Huayu (chinadaily.com.cn)
Updated: 2009-05-27 16:45

China has issued new rules to allow insurers to invest in corporate bonds without bank guarantees and allow smaller players to trade stocks directly, in a move to boost the country's fledgling stock and debt markets.

The changes will likely boost the bottom lines of China's insurers such as China Life Insurance Co, the world's top life insurer by market value, its smaller rival Ping An Insurance (Group) Co of China and China Pacific Insurance.

The China Insurance Regulatory Commission (CIRC) said in statements on its website in April it was also allowing life insurers and non-life insurers to invest 6 percent and 4 percent of their assets, respectively, in bonds backed by infrastructure projects.

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In order to do so, insurers' solvency ratio in the previous two years must be above 120 percent, the regulator said.

Insurance firms may also invest 15 percent of their total assets in unsecured bonds, including those issued by big State firms in Hong Kong, the CIRC said. They can also invest in local government bonds - a new category of debt launched recently.

Insurers who have solvency ratios of more than 150 percent can now directly trade stocks. Previously, smaller companies could only invest in the equity market through asset management companies or fund houses.

The CIRC said insurance firms must not increase their equity investments if their solvency ratio falls below 100 percent for two consecutive quarters. If that happens, they must report to the regulator and take timely measures to reduce investment risk.

The changes would "support the reforms and development of China's capital markets and enhance the ability of insurance companies' self asset allocations and investment management," the regulator said...

The full text is available in the May Issue of China Insurance. Please visit publications for more subscription details.