China Releases Insurers from Equity Investment Restrictions

CBIRC draft rules loosen restrictions on how much insurance companies can invest in the stock market and in which sectors they can participate.

The CBIRC (China Banking and Insurance Regulatory Commission) has issued draft rules loosening restrictions on insurance companies investing in equity markets.

Current rules allow insurers to make equity investments only in other insurance companies, non-insurance financial companies and companies with pension, health-care and auto services businesses that are related to the insurance sector. These investments are presently capped at 30 percent of an insurer’s assets.

Released on Friday (26 October), the draft rules loosen these restrictions, enabling insurance companies set up specialised funds through which they can boost their investments in equities, provided they have not been subject to administrative penalties during the last three years.

According to the CBIRC, the new rules are aimed at providing long-term capital support to listed companies, reducing leverage in and supporting the real economy, and mitigating liquidity risks related to shared pledged as collateral for loans.

At the end of 2017, the insurance industry had combined assets of CNY 16.8 trillion (USD 2.7 trillion), of which 13.75 percent is currently invested in mutual funds and stocks.

Insurance companies will be able to make strategic investments and participate in private placements and block trades in listed companies, provided that such investments account for no more than 20 percent of the fund’s total assets. They will also be allowed to invest in publicly issued bonds and convertible bonds through private placements by listed companies.

Investments made through these specialised funds will be supervised in the same way as other financial investments and will not be subject to existing restrictions based on insurers’ total assets.

During the 2015 market plunge, China’s insurance regulator allowed insurance companies to invest up to 10 percent of their assets in a single stock, up from 5 percent previously. It also increased the investment threshold for stocks and securities from 30 percent to 40 percent of total assets. These investment limits were rolled back in January 2017.

While the latest rules do not place limits on equity investments using the new specialised funds, they say insurers should carefully select the industries and types of enterprises they invest in and ensure effective risk management.

Just days earlier, Chinese regulators issued rules allowing funds from asset management plans and WMPs (wealth management products) to be invested in stocks, as they sought to restore market confidence.

 

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