Insurers given wider access to bonds

PUBLISHED : Wednesday, 16 May, 2012, 12:00am
UPDATED : Wednesday, 16 May, 2012, 12:00am


The country's insurance regulator has allowed insurers to buy corporate bonds that come without guarantees, taking yet another step to widen their access to riskier but higher-yielding investments.

The China Insurance Regulatory Commission (CIRC) said in a statement on its website that insurers could buy unsecured corporate debt as part of a plan to deepen reform of the usage of insurance assets.

The liberalisation is a result of at least four years of lobbying efforts by industry officials, who appealed to Beijing to loosen regulations on insurers' business operations.

The CIRC had earlier maintained a tight grip on the 6 trillion yuan (HK$7.36 trillion) in assets held by the country's 150 insurers, but the rapid growth of the capital market has prompted the regulator to ease the reins in past years.

In August 2010, the CIRC raised the cap for insurers' A-share investment to 25 per cent from 20 per cent while allowing them to spend 5 to 10 per cent of their assets in overseas stocks, securities funds and bonds.

'The regulator has been cautious in liberalising investments in high-yield bonds due to concerns about issuers,' said Gang Meng, a rating director at Dagong Global Credit Rating. 'The [new] policy directives are aimed at giving insurers more freedom to seek higher returns but that doesn't necessarily mean insurers will aggressively purchase risky debts in the near future.'

The deregulation is also the first major policy implemented by the CIRC since Xiang Junbo, former chairman of the Agricultural Bank of China, took the regulator's helm in October.

Xiang, along with newly appointed China Securities Regulatory Commission (CSRC) chairman Guo Shuqing, are viewed as reform-minded technocrats keen to push through market-based changes.

The CSRC is expected to launch a high-yield bond market on the Shanghai Stock Exchange before the end of next month, an initiative designed to help small, privately owned businesses raise funds.

To raise money from investors with an appetite for high risk, small enterprises issuing bonds on the Shanghai bourse could offer interest rates that are up to three times the benchmark bank lending rates.

6tr yuan

The value, in yuan, of assets held by the mainland's 150 insurers