Circular on Matters Relevant to the Investment in Unsecured Enterprise Bonds by Insurance Institutions

(Issued by the China Insurance Regulatory Commission on December 29 2009.)

Bao Jian Fa [2009] No.132

Insurance companies and insurance asset management companies:

With a view to strengthening the administration of investment in unsecured bonds, regulating investment and guarding against investment risks, and pursuant to the Tentative Measures for the Administration of Investments in Bonds by Insurance Institutional Investors (the Measures) and relevant provisions, the CIRC has decided to revise the relevant policy on the investment in bonds by insurance institutions and hereby notifies you of relevant matters as follows:

1. Insurance institutions may invest in unsecured enterprise bonds issued on the domestic interbank market, provided that the same satisfy the conditions in the Measures and relevant provisions and have a long-term AAA or equivalent rating as rated by a domestic credit rating agency.

2. The percentage invested by an insurance institution in unsecured bonds such as unsecured enterprise bonds and non-financial enterprise debt financing instruments shall, in addition to being handled in accordance with existing provisions, comply with the following provisions:

(1) the balance of insurance funds invested in the unsecured bonds issued by one enterprise (company) may not, in total, exceed 20% of the enterprise's (company's) net assets;

(2) the share of a single type of unsecured bonds of one issuance invested in by the insurance institutions in one group may not, in total, exceed 60% of that issuance of that type of bonds; and

(3) the balance of unsecured bonds issued by an affiliated enterprise (company) invested in by an insurance institution may not exceed 10% of such institution's net assets.

3. The unsecured bonds that an insurance institution is to invest in shall be issued by way of a public invitation for bids, and the coupon rate and issue price and related fee rates shall be determined by the market and genuinely reflect market demand. An insurance institution may not obtain improper gains through means such as a directed subscription.

4. An insurance institution shall pay close attention to the liability risks of the local financing platform, rationally analyse the investment value and the risks and returns of urban infrastructure investment bonds, fully take into account the effect that macroeconomic policy and economic development will have on the capacity to repay the principal and pay the coupons, and pay special attention to financial details of the issuer such as the scale of its liabilities and the cash flow from its core business, the sufficiency of the source of funds for the repayment of its debts and the effectiveness of the security provided therefor so as to duly guard against credit risk and liquidity risk.