Buying Enterprise Bonds: The CIRC Relaxes the Rules

By Mao Baigen & Roland Sun, Pu Dong Law Office, Shanghai

The China Insurance Regulatory Commission (CIRC) recently relaxed the limitations that are placed on insurance companies in their capital investments in the bond market. For insurance companies, the new measures that have been adopted by the CIRC have been long anticipated. With the rapid increase in insurance premiums in the past couple of years, how best to utilize their newfound capital has been an important issue for insurance firms. The industry has welcomed the new rules on Administration of Investments in Corporate Bonds by Insurance Companies Tentative Procedures (the Procedures),¹ which were published in May 2003. The Purchase of Central Enterprise Bonds by Insurance Companies Procedures, issued earlier in 2003, have been repealed.

The PRC Insurance Law imposes strict limits on bond investments by insurance companies. The law provides that funds may only be used in bank deposits, to invest in government and financial bonds, and other areas allowed by the State Council. In practice, insurance firms generally also purchase enterprise bonds and securities investment funds in a proportion approved by the CIRC. However, owing to a market slump and some policy issues, currently the returns from bank savings and securities investment funds are too low to be satisfactory, so permitting insurance firms to purchase more enterprise bonds with a higher yield seems to be the sole approach to solving the problem.