BEIJING/SHANGHAI, April 8 (Reuters) - China has issued new rules to allow insurers to invest in corporate bonds without bank guarantees and smaller players to trade stocks directly, in a move to boost the country's fledgling stock and debt markets.
The changes are likely to boost the bottom lines of China's insurers such as China Life Insurance Co <2628.HK><601628.SS>, the world's top life insurer by market value, its smaller rival Ping An Insurance (Group) Co of China <601318.SS><2318.HK> and China Pacific Insurance <601601.SS>.
The China Insurance Regulatory Commission said in statements on its website late on Tuesday 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.
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 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.
MARKET-ORIENTED SOCIAL WELFARE
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.
China's insurance sector has enjoyed the fastest growth among major global economies this decade as the government dismantles a state-run cradle-to-grave welfare system and replaces it with more market-oriented social welfare mechanisms in the world's most populated nation with 1.3 billion people.
Chinese insurance premiums grew 39 percent to 978 billion yuan ($143 billion) last year, marking the fastest annual growth since 2002.
However, regulatory restrictions and a lack of investment expertise by many insurers made them keep as much as 84.4 percent of their assets in bank deposits and government and other guaranteed bonds by the end of 2008, CIRC data showed.
"Enhancing the asset management ability is an important base for insurers to fight against financial crises, maintain the safety of their assets and conduct business innovations," the CIRC said.
"Insurers and insurance asset management companies must make a great effort to build up such abilities," the regulator said, in a departure to its traditionally cautious attitude toward insurers' diversification of investments. ($1=6.83 Yuan) (Reporting by Langi Chiang and Lu Jianxin, Editing by Jacqueline Wong) ((jianxin.lu@thomsonreuters.com; +86 21 6104 1792; Reuters Messaging: jianxin.lu.reuters.com@reuters.net)) ((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com))
