Name: Interim Measures on the Administration of the Use of Insurance Proceeds (《保险资金运用管理暂行办法》, the “Measures”)
Issuing authority: China Insurance Regulatory Commission (the “CIRC”)
Effective date: 31 August 2010
Subject: Use of insurance proceeds
The CIRC has issued new rules further expanding the scope of permitted investments by insurance companies and providing further guidance on the scope of such activities. The Measures, which become effective at the end of this month, are a welcome development since to date there have been limited permitted investment channels available to insurance companies.
Highlights
- The Measures apply to insurance companies and insurance holding companies incorporated in the PRC. Insurance asset management companies incorporated in the PRC are also required to have regard to the Measures when investing “insurance proceeds”.
- The Measures refer to “insurance proceeds”, which can be invested in a range of permitted investments. Insurance proceeds comprise a company’s capital, reserves, retained profits, liability reserves and other proceeds received by it.
Permitted investments
- Bank deposits – Insurance proceeds can be deposited with a PRC commercial bank. However, there are specific qualification requirements for commercial banks taking deposits of insurance proceeds. For example, the capital adequacy ratio and net assets of a deposit taking bank must comply with specified regulatory requirements.
- Bonds – Insurance proceeds can be used to invest in bonds, including government bonds, financial bonds, enterprise/corporate bonds and debt instruments provided that the credit rating of the relevant bonds which is rated by a credit rating agency recognised by the CSRC must comply with the various rating requirements as set out in the relevant CSRC rules.
- Shares – Investment in shares is no longer limited to RMB-denominated shares (as was the case under the previous regulations) suggesting that it will be possible for insurance companies to invest in shares of companies listed on offshore stock exchanges.
- Securities funds – There are some qualification requirements on fund management companies managing securities funds invested in by insurance companies, including that the net assets of the fund management company be no less than RMB100 million in each of the three previous years.
- Real estate – Whilst the relevant implementing rules are still to be formulated by the CIRC, the Measures make it clear that insurance companies can invest in land use rights and buildings.
- Equity interests – Insurance companies can now invest in equity interests in PRC private companies including shares of unlisted joint stock companies and equity interests of limited liability companies.
Ratio requirements
The Measures set out various ratio requirements for each of the above permitted investments. For instance:
- the book value of any unsecured corporate/enterprise bonds and debt instruments at any timecannot exceed 20% of the total assets of the insurance company as at the end of the preceding quarter;
- the book value of any shares and any interests in any funds invested in shares at any time cannot exceed 20% of the total assets of the insurance company as at the end of the preceding quarter; and
- the book value of real estate investments and financial products relating to real estates at any time cannot exceed 10% of the total assets of the insurance company as at the end of the preceding quarter.
Prohibited investments
Insurance companies are expressly prohibited from making certain investments under the Measures. For instance, insurance companies cannot:
- deposit insurance proceeds with non-bank financial institutions;
- directly engage in real estate development; or
- conduct venture capital investment.
Internal management structure
- The Measures require two special committees to be set up under the board of directors of an insurance company, an asset and liability management committee/investment strategic committee and a risk management committee.
- Any material investments, such as investments in unsecured bonds, shares, equity interests and real estates require the prior approval the board of directors.
If you would like to discuss anything regarding this alert please contact any of the following: Teresa Ma, Fang Jian or Eric Liu.
