Insurers Given Greater Leeway to Invest in Capital Supplementation Bonds Issued by Chinese Banks

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Chinese regulators hopes to shore up access to capital for domestic banks by loosening restrictions on investment in their bond issues by insurance companies.

On 27 May the China Banking and Insurance Regulatory Commission (CBIRC) announced that it had recently amended and promulgated the “Notice Concerning Matters in Relation to Insurance Funds Investing in Bank Capital Supplementation Bonds” (关于保险资金投资银行资本补充债券有关事项的通知) that was first issued in 2019.

According to CBIRC the goal of the amendments is to “further expand bank capital supplementation channels and expand the space for the use of funds by insurers.”

Key contents of the amended Notice include:

  1. Cancellation of the requirements that total assets of issuers not be less than one trillion yuan, and net assets not be less than 50 billion yuan.
  2. The prior requirement that “the tier-1 core capital adequacy ratio not be less than 8%, the tier-1 capital adequacy ratio not be less than 9%, and the capital adequacy ratio not be less than 11%” is changed to “capital adequacy ratios satisfy regulatory requirements.”
  3. Cancellation of the requirement that the external credit rating of issuers be AAA.
  4. Cancellation of credit rating requirements for investment in secondary capital bonds (AAA) and open-ended capital bonds (AA+).
  5. Clarification that the credit risk management capability of insurance organisations reach the standards stipulated by CBIRC, and that the repayment capability adequacy ratio for the end of the previous quarter not be less than 120%.
  6. Requirement that insurance organisations provide confirmation of equity assets or fixed income assets in accordance with the categorisation by issuers of capital supplementation equity instruments or debt instruments, and acceptance of corresponding ratio regulation by authorities.

The new version of the Notice also requires that insurance organisations “pragmatically strengthen risk management, and prudently assess investment returns and risk.”

An official from CBIRC said that the new version of the Notice would be of “benefit to enriching insurance asset allocation, and expanding the space for funds allocation by insurers.”

[It] will expand the investment sovereignty of insurance organisations, and give insurance organisations greater authority to judge investment value and risk.

It will be of benefit to supporting small and medium-sized banks to expand their capital supplementation channels and optimise their capital structure, and of benefit to expanding investors in capital supplementation bonds, improving market-based mechanisms for the pricing of issues.

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