Bonds May 29

Chinese insurers can now invest in bonds

Regulators allow companies to invest in bank tier-2 capital bonds and perpetual bonds, but say they must meet credit-risk capabilities and solvency ratios set by banking authorities

Chinese insurers can now invest in bonds
Pedestrians walk past a branch of China Life Insurance Company Ltd, the country's largest life-insurer. Regulators have said Chinese insurance funds can now invest in secondary capital bonds issued by banks, plus capital bonds with no fixed term, as long as they meet banking standards and solvency ratios. File photo by Ren Weihong / Imaginechina via AFP.

(ATF) Chinese insurance funds can invest in secondary capital bonds issued by banks and capital bonds with no fixed term, under a new decision by the China Banking and Insurance Regulatory Commission.

The move, announced on Wednesday May 27, aims to to serve the real economy and expand the space for the allocation of insurance funds, according to a new law titled "Administrative Measures on the Use of Insurance Funds" and other regulations.

The commission clarified that investments by insurance funds in bank secondary capital bonds and capital bonds with no fixed term shall be recognised as equity assets or fixed income assets, according to the issuer’s classification of the equity or debt instruments. They should be managed  under “corresponding supervision,” it said.

The notice said credit risk management capabilities of insurance funds that invest in banks' second-level capital bonds and unfixed-term capital bonds should meet standards stipulated by the China Banking Regulatory Commission, and the solvency adequacy ratio at the end of the last quarter should not be less than 120%.

And in the period that insurance institutions hold capital supplementary bonds, if the solvency adequacy ratio is less than 120%, they should adjust their investment strategies in a timely manner and take effective measures to control related risks.

The commission said the issuer of bank second-level capital bonds and unfixed-term capital bonds which insurance funds invest in should have good corporate governance, sound operations, and capital adequacy ratios that comply with regulatory requirements.

It said insurance funds should strengthen risk management effectively, carefully judge the benefits and risks of investment, make independent decisions, and bear their own risks. If a bank’s second-tier capital bonds and unfixed-term capital bonds have significant risks and trigger events, the insurance institution should file a report to the China Banking Regulatory Commission in a timely manner.