China's CIRC publishes rules on bond investments

The new regulations set out limits for investments by insurance companies in commercial bank bonds, corporate bonds and convertible bonds. The regulations allow insurers to invest in commercial bank bonds, including subordinated bonds, issued by banks with total assets of no less than RMB200 billion and core capital adequacy ratio of not less than 4%.

In addition, the issuing banks must have been profitable for the last three years, and possesses a long-term credit rating of either A or above by a domestic rating agency, or BB or above by an international rating agency.

The limit on investments in commercial bank bonds, including subordinated bonds, is set at 30% of the insurance company’s total assets at the end of the last quarter. Insurance companies also cannot invest more than 10% of total assets at end of last quarter in any one single bank’s bonds, including subordinated bonds.

In addition, insurers can invest in commercial bank bonds rated AA and above, or its equivalent, of the same maturity subject to a limit of 20% of the issue size, and 5% of the insurer’s total assets at the end of the last quarter. For investments in A-rated bonds, the corresponding limits are 10% of the issue size and 3% of the insurer’s total asset size.

The CIRC has been relaxing restrictions on the scope of investments by Chinese insurers in an attempt to bolster their returns. Since September 2004, domestic insurers have been allowed to invest 80% of their foreign currency holdings in overseas bonds. The government is in the process of drafting a law to allow local insurers to buy stakes in overseas insurance companies.