The China Insurance Regulatory Commission on Jan. 24 issued new stricter regulation on insurers' investments in equities as part of its efforts to control risks.
The latest regulation distinguishes different levels of stock investments, requiring an insurer to have a solvency ratio of above 100% if it wants to invest in less than 20% of a listed company's equities. Insurers that want to invest in more than 20% of a listed company's equities, or acquire a listed company, must have a solvency ratio above 150% in the quarter prior.
In addition, insurance companies are prohibited from investing more than 5% of its previous quarter's total assets in a single stock. The regulator will also limit insurers from investing more than 30% of their previous quarter's total assets in equities. Insurance companies that have already reached the new investment caps have around two years to adjust their investment portfolios.
When acquiring listed companies, insurance companies are required to use their own funds, and should not make the acquisitions with noninsurance companies acting in concert.
In 2016, the insurance regulator and the China Securities Regulatory Commission questioned some insurers' investment strategies. Liu Shiyu, chairman of China's securities regulator, said certain asset managers used questionable funds for leveraged acquisitions, causing "a series of abnormal occurrences in the capital markets."
As of Jan. 24, US$1 was equivalent to 6.86 Chinese yuan.