Regulators Clear Insurance Funds to Buy Stocks
China’s banking and insurance regulator Thursday issued rules clearing insurance companies to invest in stocks through specialized products.
The move is intended to provide long-term, stable funding support for high-quality listed companies and help mitigate liquidity risks related to shares pledged as collateral for loans, the China Banking and Insurance Regulatory Commission (CBIRC) said in a statement (link in Chinese).
CBIRC Chairman Guo Shuqing called for such products for equities investments only last week. The quick regulatory action reflects the Chinese government’s determination to shore up the stock market. It is part of a flurry of measures China has taken to stop a sell-off of shares.
The Shanghai composite index has lost more than 20% this year amid worries about slowing economic growth and rising trade tensions with the U.S. China’s stock markets have been among the world’s worst performers this year.
Under the CBIRC’s new rules, only insurance asset management companies are eligible to set up specialized investment products if they have not been subject to administrative penalties for major violations and acts of dishonesty in the past three years.
The rules also apply to investment products set up by certain qualified pension insurance companies, the CBIRC said.
Investments in such products will not be limited to shares of listed companies but will also include publicly issued bonds of listed companies and their shareholders and convertible bonds issued in private placements by listed companies.
Under the new rules, the amounts invested in equities through the specialized products won’t be subject to existing restrictions on stock investments based on insurers’ total assets, analysts said. Instead, the investment products will be supervised in the same way as other financial investments.
In July 2015, in a bid to prop up a plunging stock market, regulators raised the limit on insurer investments in a single stock to 10% of assets from 5% and the overall equity investment ceiling to 40% of portfolios from 30%.
But in January 2017, the investment limits were rolled back to the pre-July 2015 levels to curb insurers’ aggressive investments in stocks. The newest rule puts no limits on the new specialized products, a further step toward loosening up, an insurance company executive said.
To discourage issuers from pursuing risky investments, the rules stipulate that insurance asset management companies should “reasonably control the concentration of product investment and effectively manage various risks.”
Among other recent measures to bolster markets, the Securities Association of China announced Monday a 100 billion yuan ($14.5 billion) collective asset-management program to help listed companies ease liquidity crunches amid the market rout.
The CBIRC has also allowed subsidiaries of commercial banks to invest funds raised via wealth management products in the stock market.
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