New rules for insurers' ABS deals

Beijing is drafting new rules for mainland insurers investing in the country's fledgling asset-backed securitisation (ABS) market, the insurance industry regulator said yesterday.

The rules were being designed to offer guidance for investing in an emerging asset class, a spokesman from the China Insurance Regulatory Commission said. 'We sent relevant proposals to insurers some time ago and are now waiting for their feedback,' he said.

The proposed rules will forbid mainland insurers from investing more than 2 per cent of their total assets as of the end of the last financial year in asset-backed securities, which are bonds based on underlying debt such as company loans or mortgages.

The guidelines will also urge insurers to limit their asset-backed securities investments to those issued by commercial banks with ratings of 'AA' or above. 'It is a step towards investment diversification,' said Olive Xia, an analyst at Core Pacific-Yamaichi International.

'Mainland insurers now only invest a very small percentage in this type of asset. As the ABS market develops in China, that could be another investment option without directly targeting a reduction of their A-share investments.'

Mainland insurers face the risk of concentrating investments in the domestic stock market, which lost steam in the second half. To release the pent-up demand, the insurance watchdog in October allowed selected insurers to invest 5 per cent of their total assets in overseas equities through the qualified domestic institutional investor programme.