China: More Flexibility For Insurance Funds Utilisation

Last Updated: 13 August 2012
Article by Carrie Yang and Amanda Li

On 16 July 2012, China Insurance Regulatory Commission (CIRC) issued the Notice on Issues over Investment of Insurance Funds in Private Equity and Real Estate ("Notice") to insurance companies and insurance asset management companies. The Notice was published on the CIRC's website on 25 July 2012.

Increased investment ratios

Pursuant to the Notice, the ratio requirements for investment of insurance funds in private equity and real estate have been adjusted as follows:

  • The aggregate book value of any investment in unlisted company equities and any financial products relating to unlisted company equities shall not exceed 10% of the total assets at the end of the prior quarter
  • The book value of any real estate investment shall not exceed 15% of the total assets at the end of the prior quarter
  • The aggregate book value of any financial products relating to real estate and infrastructure bonds shall not exceed 20% of the total assets at the end of the prior quarter

The below table compares the percentages prescribed for investments in private equity and real estate with insurance funds pre- and post- implementation of the Notice:


Old rules

New rules

Equity investment

(1) Equity investment in unlisted companies

≤ 5%

Aggregate of equity investment in unlisted companies and financial products relating to equities in unlisted companies

≤ 10%

(2) Financial products relating to equities in unlisted companies

≤ 4%

Aggregate of (1) and (2) above

≤ 5%

Real estate investment

(1) Real estate

≤ 10%

(1) Real estate

≤ 15%

(2) Financial products relating to real estate

≤ 3%

(2) Financial products relating to real estate and infrastructure bonds

≤ 20%

(3) Infrastructure bonds

≤ 10%

Aggregate of (1) and (2) above

≤ 10%

Aggregate of (1) and (2) above

≤ 20%

The maximum ratios for insurance companies' investment in private equity and real estate have almost doubled.

Broadened scope for private equity investment

Under the previous regulations, insurance companies were only permitted to directly invest in insurance companies / insurance intermediaries, non-insurance related financial institutions, and companies providing elder care, medical care and auto services that were closely related to insurance business.

The CIRC has now allowed insurance companies to directly invest in the following types of unlisted companies:

  • Energy companies
  • Resources companies
  • Modern agriculture companies relating to insurance business
  • Commercial trade and distribution companies adopting new business models

This fits with China's intention to develop the energy, modern agriculture and commercial and trading industries and encourage investment in these industries.

Relaxed eligibility criteria

The CIRC has also reduced the following eligibility criteria, which will hopefully allow more insurance companies to invest in private equity and real estate:



Equity investment

Real estate Investment

Private equity Investment

Real estate investment

Solvency margin ratio at the end of the previous fiscal year not less than 150%


Solvency margin ratio at the end of the quarter prior to the investing not less than 150%

Solvency margin ratio at the end of the prior quarter not less than 120%

Having made a profit in the previous fiscal year


Net assets at the end of the previous fiscal year not less than RMB1 billion

Net assets at the end of the previous fiscal year not less than RMB100 million

Net assets at the end of the previous fiscal year not less than RMB100 million

Expected new rules

The CIRC has a strong intention to provide a less stringent regulatory environment for utilisation of insurance funds by insurance companies. It was reported that thirteen separate new draft rules were under discussion, which would cover almost all of the expected investment channels for the insurance industry, including margin financing and securities lending, financial derivatives and index futures.

To date, the following three new rules have been promulgated by the CIRC, which came into force on 16 July 2012:

  1. Interim Measures on Investment in Bonds with Insurance Funds
  2. Interim Measures on Management of Entrusted Investment of Insurance Funds
  3. Interim Measures on Management of Insurance Asset Allocation

The CIRC expects to finalise and circulate other new draft rules in the near feature.

According to the CIRC, since the end of 2011, it has been drafting / amending various regulations on the utilisation of insurance funds. During his trip to Wenzhou at the end of April 2012, the Chairman of the CIRC, Xiang Junbo, emphasised that the insurance industry shall contribute to economic growth and development at local and national levels. Subject to the macro policies and industrial policies, new modes and paths need to be explored for insurance funds to participate in the real economy. Utilisation and supervision of insurance funds will be further marketised. In addition to insurance companies, other financial institutions in China such as commercial banks, securities companies and funds management companies will also benefit from the reform of supervision and utilisation of insurance funds.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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