China

CBIRC releases Notice on Optimising the Supervision of Insurance Companies' Equity Asset Allocation

The China Banking and Insurance Regulatory Commission (CBIRC) has released ‘the Notice on Matters Concerning the Supervision of the Allocation of Equity Assets of Insurance Companies’.

The Notice has been published in order to further deepen the market-oriented reform of the use of insurance funds, guide insurance funds to better serve the real economy, actively give play to the role of insurance institutions as important institutional investors in the capital market, and enhance the independent decision-making space for insurance companies’ use of funds, CBIRC said in a press release.

There are twelve articles in the Notice, reports CBIRC, with the first ‘content’ being the establishment of differentiated equity asset investment supervision ratios. The main aim of this first article is to give companies more independent investment rights by setting a differentiated supervision ratio, and improve the accuracy and pertinence of supervision policies.

The second is to strengthen the supervision of key companies; the article stipulates that insurance companies with a solvency adequacy ratio of less than 100% shall not add new equity asset investments. Furthermore, life insurance companies with a liability reserve coverage ratio of less than 100%, or weak asset and liability management capabilities, amongst other considerations, will be subject to an equity assets limitation of 15%.

The third pertains to the increase of the concentration risk supervision index. This is reportedly to be in response to irrational behaviours such as blind investment, excessive investment caused by investment impulse, frequent placards and other irrational behaviours in the past, and as such the total number of shares purchased in a single listed company by the insurance entity shall not exceed 10%.

And the fourth is to guide insurance companies to conduct prudent investment and steady investment by requiring insurance companies to adhere to the principles of value investment, long-term investment, and prudent investment, amongst other guidance.

According to the press release, the issuance and implementation of the Notice is an important measure to implement the ‘six stability’ requirements of the Party Central Committee and the State Council.

The Notice reportedly holds positive significance for promoting the stable investment of insurance funds and improving the supervision of insurance funds utilisation in China, and will contribute to broaden the independent decision-making space for insurance fund investment, help to explore the establishment of a differentiated regulatory mechanism, improve the pertinence, accuracy and effectiveness of the supervision of the use of insurance funds, and effectively prevent the risks of key companies and key products, amongst other benefits, as reported by the CBIRC press statement.

Looking ahead, the CBIRC will continue down this path of market-oriented reforms, continuing its work to strengthen the classified regulatory mechanism, actively explore the equity investment regulatory models of different types of insurance companies, and support insurance companies to provide effective services.