The China Insurance Regulatory Commission (CIRC) recently released a set of "Interim Measures on the Utilisation of Insurance Funds" (Measures), setting out modified rules on permitted investments by insurance companies in China, effective from 31 August 2010.

In particular, these Measures specify, for the first time, the ratio of insurance funds that may be invested into real estate, shares of unlisted companies and unsecured bonds and debt instruments.

Following the release of these Measures, CIRC also released a "Notice on the Modification of Insurance Fund Investment Policies" (Notice 66) on 11 August, providing further details on insurers' permitted investment channels and ratios.

Details of the permitted investment ratios are set out in the tables below.

Who do the Measures apply to?

The Measures apply to insurance holding companies, insurance companies and insurance asset management companies established in China.

We note that the Measures make no distinction between foreign-invested and domestic insurance companies, and re-insurance companies are not mentioned in the Measures. However, it is our view that the use of insurance funds by such companies must comply with these Measures.

"Insurance funds"

The "insurance funds" referred to in the Measures comprise insurers':

  • capital funds;
  • social welfare funds;
  • undistributed profits;
  • reserve funds; and
  • other funds.

Permitted investment channels

There are 3 major channels in which insurers are permitted to invest their insurance funds into, and a broad category of specifically approved investments:

  • bank deposits;
  • bonds, shares and securities investment funds;
  • real estate; and
  • other channels permitted by the State Council (which currently include infrastructure and central bank bills).

Permitted investment ratios

The Measures limit the amount of an insurer's insurance funds that may be invested in any particular type of permitted investment. These ratios are set out in the first table below.

Unless otherwise noted, the ratios set out in the tables below are measured using the "book balance of the total value of the investments concerned" against the "amount of the particular insurer's total assets at the end of the preceding quarter".

  Type of Investment Permitted Investment Ratio
(1) bank call deposits, government bonds, central bank bills, policy bank bonds and funds such as money market funds not less than 5%
(2) unsecured corporate bonds and non-financial corporate debt financing instruments not more than 20%
(3) shares and funds of an equity nature not more than 20%
(4) (a) shareholding interests in unlisted companies not more than 5%
  (b) financial products related to shareholding interests in unlisted companies not more than 4%
  (c ) (a) + (b) not more than 5%
(5) (a) real estate not more than 10%
  (b) real estate related financial products not more than 3%
  (c) (a) + (b) not more than 10%
(6) infrastructure related to debt investment schemes not more than 10%

In addition, the Measures provide that:

  • any direct investment by insurers into the development of real estate projects is prohibited. Therefore, it seems that real estate investment by insurers may only be made by way of investment into existing real estate projects and real estate related financial products;
  • for the calculations in (1) to (6) above, total assets exclude the outstanding amount of bond repurchase agreements, investment-linked insurance products, and non-life assurance type of variable return insurance investment products;
  • the total assets of insurance holding companies refers to the total assets of the group parent company; and
  • the cumulative cost of investment in shareholding interests by insurers must not exceed their net asset value.

The table below sets out the further ratios imposed by Notice 66.

  Type of Investment   Permitted Investment Ratio
(7) Shares any single listed company shares not more than 10% of the total share capital of the company (NB. 1)
(8) Securities investment funds any single securities investment funds not more than 3%
    securities investment funds (in total) not more than 15%
    securities investment funds and shares not more than 25% (NB. 2)
    any single close-end fund no more than 10% of the fund's issued value
(9) Bonds any single bond listed below:
  • commercial bank financial bond
  • commercial bank subordinated bond
  • commercial bank subordinated term debts
  • international development institution RMB bond
  • secured enterprise (corporate) bond
not more than 20% of the bond's issued value
    any single unsecured bond not more than 10% of the bond's issued value
    secured and unsecured bonds (NB. 3)  
  • bonds issued by the same issuer
not more than 20% of the issuer's net asset value at the preceding accounting year
  • bonds issued by related/affiliate companies
not more than 20%
(10) overseas investments (NB. 4) - not more than 15%
(11) any single investee legal entity -

not more than 20%; and

not more than 50% of the investee legal entity's net asset value at the preceding accounting year


  1. Investment over 10% will only be allowed for acquisition of a controlling interest.
  2. Insurers may invest up to 25% of their insurance funds into shares and securities investment funds. This means that an insurer may invest 20% of their insurance funds into shares and funds of an equity nature, as stipulated by the Measures, while investing another 5% into other securities investment funds.
  3. Insurers that belong to the same insurance holding company may not invest, in total, more than 60% of the issued value of the same series of bonds (whether secured or unsecured).
  4. Overseas investments include publically issued bonds and securities investment funds, as well as publically listed shares. Insurers' investments into the Hong Kong market are limited to i) shares listed on the Main Board of the Hong Kong Stock Exchange, and ii) bonds issued in Hong Kong by Main Board listed companies and large Chinese state-owned enterprises.

Prohibited investments

The Measures also set out a list of investments that insurers are prohibited from making, which include:

  • depositing insurance funds into non-banking financial institutions;
  • any direct investment into the development of real estate;
  • venture capital investment;
  • purchasing shares that a stock exchange has identified as "having the potential to be de-listed" or "requiring special treatment";
  • investing in shareholding interests or real estate that have no prospects for a stable cash return or capital gain, or are in a high-polluting industry;
  • providing guarantees or granting loans (with the exception of granting personal policy loans); and
  • any other investments that may otherwise be prohibited by CIRC.

For more information on these Measures or to obtain an English translation, please contact one of the Mallesons team members listed in this Alert.

We also provide links to the Chinese text of these Measures and Notice 66.

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.