Matters Relevant to Investments in Bank Subordinated Debt with Fixed Term by Insurance Companies Circular

(Issued by the China Insurance Regulatory Commission on March 29 2004.)

Bao Jian Fa [2004] No.23

To all insurance companies and insurance asset management companies:

In order to enrich the investment varieties for insurance funds, improve matching performance of insurance company assets and liabilities and effectively diversify risks, we hereby decided to allow insurance companies to invest in bank subordinated debt with fixed term (hereafter, Subordinated Debt). In order to strengthen administration, we hereby notify you in respect of the related matters as follows:

1. Subordinated Debt invested by insurance companies shall be bank subordinated debt with fixed term whose issuance is subject to the approval of the China Banking Regulatory Commission and complies with the provisions of the Incorporating Subordinated Debt with Fixed Term in Supplementary Capital Circular (ref. Yin Jian Fa [2003] No.25).

2. Insurance companies shall invest in Subordinated Debt in strict accordance with the stipulated ratio. The balance of investments in Subordinated Debt, calculated at cost, may not exceed 8% of the company's total assets at the end of the preceding month; the aggregate ratio of investments in the Subordinated Debt issued by the same bank may not exceed 1% of the company's total assets at the end of the preceding month; the ratio of investments in one issue of Subordinated Debt may not exceed 20% of the amount of subordinated debt issued for that issue.

3. Insurance companies may not invest in Subordinated Debt whose term exceeds six years.

4. Insurance companies may invest only in Subordinated Debt issued by wholly state-owned commercial banks and commercial banks under the national share system.

5. Insurance companies shall pay attention to prevent interest rate risks when investing in Subordinated Debt, and invest in a combination of Subordinated Debt with fixed interest rates and floating interest rates, striving to enrich the investment varieties.

6. When investing in Subordinated Debt, an insurance company shall, within 10 days upon each occasion of Subordinated Debt business, submit to the China Insurance Regulatory Commission a copy of the agreement on investment in Subordinated Debt signed with the commercial bank.

7. The purchase of Subordinated Debt by insurance companies shall be centrally carried out by the head office of insurance companies. Branches and sub-branches of insurance companies may not purchase Subordinated Debt.

8. Investments in Subordinated Debt with an insurance asset management company's own funds shall be handled in accordance with the Circular.

9. Investment in domestic Subordinated Debt by the principal branches of foreign insurance companies in China shall be handled in accordance with the Circular.