The China Insurance Regulatory Commission (CIRC) has recently issued a Circular aimed at expanding the scope of domestic insurers’ bond investments and enhancing their internal risk management mechanisms (the "Circular").

According to the Circular, domestic insurers will be allowed to invest in a wider range of bonds including municipal bonds issued by China’s Ministry of Finance, bonds issued by private enterprises and state-owned enterprises in mainland China, bonds issued by state-owned enterprises in Hong Kong, medium-term notes issued by non-financial companies in mainland China, and other non-guaranteed bonds.

Pursuant to the Circular, domestic insurers investing in the bond market will be subject to the following rules:

  1. Insurers with a quarterly solvency ratio in excess of 150% are allowed to invest in non-guaranteed bonds;
  2. Insurers investing in non-guaranteed bonds must establish fund trusteeship and internal credit assessing mechanisms;
  3. The value of non-guaranteed bond investments must not be more than 15% of the insurer’s total assets as at the end of the previous quarter;
  4. Investments in non-guaranteed bonds with domestic AAA credit rating issued by state-owned enterprises in mainland China must not be more than 20% of the single issuance of such bonds and the value of such bond investments must not exceed 5% of the insurer’s total assets as at the end of the previous quarter;
  5. Investments in non-guaranteed bonds with domestic AAA credit rating issued by private enterprises in mainland China must not be more than 5% of the single issuance of such bonds and the value of such bond investments must not exceed 1% of the insurer’s total assets as at the end of the previous quarter;
  6. Investments in non-guaranteed bonds with international A credit rating issued by state-owned enterprises in Hong Kong must not be more than 5% of the single issuance of such bonds and the value of such bond investments must not exceed 1% of the insurer’s total assets as at the end of the previous quarter; and
  7. The total value of investments (including guaranteed and non-guaranteed bonds) in the same company must not be more than 10% of the insurer’s total assets as at the end of the previous quarter and not more than 20% of that company’s net assets.

By giving domestic insurers greater access to the bond market, China hopes to boost liquidity that could help finance its RMB4 trillion economic stimulus package.