Mainland insurance companies are now limited to taking large stakes in just two non-listed domestic banks, as part of a series of new rules issued by the insurance regulator. China Insurance Regulatory Commission announced that insurance firms, which only in April were granted permission to begin investing in banks, can buy stakes of more than 5 per cent in just two lenders, and only with permission, and they can use no more than 3 per cent of their total assets to invest in the sector. 'Insurance institutions must take a cautious approach to investing in banks and choose their targets carefully,' the commission said. But observers said the new rules are relatively unrestrictive compared with other jurisdictions, where insurers are mostly limited to investing in fixed-income products. '[Three per cent] is actually quite a lot,' said Moody's banking analyst May Yan. 'China does not have a vibrant corporate bond market so the insurance companies must be allowed to find alternative investments.' By comparison, insurance firms in the United States are required to hold about 85 per cent of their assets in investment-grade fixed-income securities, but in China, insurers rely on low-yielding bank deposits and government bonds for the bulk of their investments. The new rules also mandate that a bank must have a capital adequacy ratio of no less than 8 per cent and a non-performing loan ratio of less than 5 per cent, unless the insurance company buys more than 10 per cent of the bank, in which case its NPL ratio cannot exceed 10 per cent. In addition, any investments in banks that involve fund raising by the insurance company must be approved by the regulator. In April, the commission ended a 13-year ban on insurance companies' involvement in the banking and securities industries. Chinese insurers such as China Life Insurance and Ping An Insurance (Group) have joined foreign strategic investors investing in the mainland's largest state-owned banks prior to their initial public offerings in Hong Kong and Shanghai. Ping An was also part of a consortium bidding for a controlling stake in troubled Guangdong Development Bank, the country's 11th-largest lender, although that deal has been granted to a consortium led by US banking giant Citigroup. 'The trend of financial sector integration is a good one but it is most important that we establish risk prevention systems,' said the commission's vice-chairman Li Kemu last week. He said assets under management in the Chinese insurance industry are expected to rise to 10 trillion yuan by 2010, double the total figure for last year.