BEIJING (Dow Jones)--China's insurance regulator said Tuesday it will allow insurers to expand investments in the debt market to include bonds related to infrastructure projects, local government debt, and non-guaranteed medium-term notes issued by non-financial companies.
By giving domestic insurers greater access to the bond market, China is unlocking more cash that could help finance a CNY4 trillion economic stimulus package focused largely on infrastructure. Local governments plan to issue CNY200 billion in debt this year, and Beijing is also encouraging corporate bond issues to fund stimulus projects.
The China Insurance Regulatory Commission issued the new rules in March, but only posted them on its Web site late Tuesday. State media have also reported details of the regulations.
China's insurers, previously with very limited investment scope, suffered huge losses from buying stocks last year, while their traditional investment in government bonds has brought only low returns. At the end of February, the insurance industry had total assets of CNY3.4 trillion.
Under the rules, insurers with a solvency ratio above 120% in the latest two financial years are allowed to buy bonds related to infrastructure projects.
Life insurers can invest no more than 6% of their total assets at the end of the latest quarter in bonds funding infrastructure projects. The CIRC set a 4% ceiling for similar investments by property insurers.
The investment ceilings represent an increase from the limits the CIRC set in a trial program for infrastructure-related investments in 2006. At the time, life insurers could only invest up to 5% of their total assets in bonds or equity linked to infrastructure projects, while property insurers could invest up to 2%.
The regulator has approved only seven projects so far under the trial program, said Mao Wei, an insurance analyst at Sinolink Securities Co. It remains unclear whether the CIRC will speed up approvals for insurers' investments in bonds issued to fund infrastructure projects, he said.
The rules also allow insurers with a quarterly solvency ratio above 150% to invest in non-guaranteed bonds.
However, the rules limit the outstanding value of non-guaranteed bonds at no higher than 15% of an insurer's total assets as of the end of the previous quarter.
In addition, when an insurer purchases an AAA rated non-guaranteed bond, its investment can't be more than 20% of the total issuance size of the bond, the rules said.
Outstanding medium-term notes, with a typical maturity of three to five years, totaled CNY234.3 billion at the end of February, accounting for 17.2% of the total corporate debt traded on the Chinese interbank market, according to data from the official Chinabond Web site.
Insurers can also buy bonds, including convertible bonds, issued by China's big state-owned enterprises in Hong Kong, the regulator added.
Insurance firms with a solvency ratio of 150% or higher can invest in stocks, while those whose solvency ratio fall below 100% for two consecutive quarters won't be allowed to buy more stocks.
