Circular on Investment in Relevant Financial Products with Insurance Capital

1. insurance capital may be invested in financial products lawfully offered in China, such as wealth management products of commercial banks, credit asset-backed securities of banking financial institutions, pooled fund trust plans of trust companies, dedicated asset management plans of securities companies, infrastructure investment plans, immovable asset investment plans and project asset-backed plans of insurance asset management companies, etc. (hereinafter collectively referred to as Financial Products).

2. The scope of investment of the assets of a wealth management product in which insurance capital are invested shall be limited to domestic market credit assets, deposits, money market instruments and publicly issued bonds that are at least investment grade. Furthermore, the issuing bank shall be independently responsible for the investment and management of the underlying assets and the risk assessment conducted by it shall place the wealth management product at the lowest risk level of grade 1 to grade 3.

The audited net assets as at the end of the previous year of the issuing bank in whose wealth management product insurance capital are invested shall not be less than Rmb30 billion or such bank shall be a commercial bank listed on a main board inside or outside China, and its credit rating shall not be less than A grade or the equivalent of A grade as rated by a domestic credit rating agency, or, if it is listed offshore and exempt from a domestic credit rating, its credit rating shall not be less than BB grade or the equivalent of BB grade as rated by an international credit rating agency.

3. The underlying pool of assets of a credit asset-backed security in which insurance capital are invested are limited to loans rated pass or special mention in the five grade loan classification. Based on the principle of whichever is lowest, the product's credit rating shall not be less than A grade or the equivalent of A grade as rated by a domestic credit rating agency.

The net assets and credit rating of a banking financial institution that serves as the promoter of a credit asset-backed security in which insurance capital are invested shall be in compliance with the second paragraph of Article 2 hereof.

4. The underlying assets of a pooled fund trust plan in which insurance capital are invested shall be limited to financing type assets and unlisted equity type assets the risks of which are controllable. Furthermore, the trustee shall manage such assets itself and bear substantial responsibilities such as product design, project selection, investment decision-making and follow-up management. The credit rating of a pooled fund trust plan with fixed returns shall not be less than A grade or the equivalent of A grade as rated by a domestic credit rating agency.

The trust company that serves as the trustee of a pooled fund trust plan in which insurance capital are invested shall have sound corporate governance, a good market reputation, stable investment performance, and audited net assets of not less than Rmb3 billion as at the end of the previous year.

5. The dedicated asset management plan in which insurance capital are invested shall comply with relevant provisions on the enterprise asset securitisation business of securities companies and the credit rating thereof shall not be less than A grade or the equivalent of A grade as rated by a domestic credit rating agency.

The securities company that serves as the manager of a dedicated asset management plan in which insurance capital are invested shall have audited net assets of not less than Rmb6 billion as at the end of the previous year, or the securities asset management company of such plan shall have audited net assets of not less than Rmb1 billion as at the end of the previous year.

6. The infrastructure bond investment plan in which insurance capital are invested shall comply with relevant provisions such as the Trial Measures for the Administration of the Indirect Investment of Insurance Funds in Infrastructure Projects, and investment of the underlying assets thereof shall be limited to bond assets of infrastructure projects approved by the State Council, the relevant ministry or commission, or the relevant provincial-level government department. The asset-liability ratio, operating cash flow to liability ratio and interest coverage ratio for the most recent financial year of the debt repayment entity shall meet the industry average level of enterprises that issued new bonds on the national interbank bond market during the same period. The credit rating of the product shall not be less than A grade or the equivalent of A grade as rated by a domestic credit rating agency.

The insurance asset management company or other such professional management firm that serves as the trustee of an infrastructure bond investment plan, infrastructure equity investment plan or project asset-backed plan in which insurance capital are invested shall comply with relevant provisions such as the Trial Measures for the Administration of the Indirect Investment of Insurance Funds in Infrastructure Projects.

7. The immovable asset investment plan in which insurance capital are invested and the trustee thereof shall comply with relevant provisions such as the Tentative Measures for the Investment in Immovable Assets with insurance capital. If an immovable asset investment plan is of the fixed return variety, it shall have a lawful and valid credit enhancement arrangement and its credit rating shall not be less than A grade or the equivalent of A grade as rated by a domestic credit rating agency. If it is of the equity variety, it shall implement risk control measures and establish the corresponding mechanism for protection of the equity invested in.

8. The investment orientation of the collected proceeds for the aforementioned Financial Products in which insurance capital are invested shall comply with state macroeconomic policy, industrial policy and regulatory policy. The product structure shall be simple, the underlying assets clear, the credit enhancement arrangement solid and it shall have a stable and foreseeable cash flow. An information disclosure mechanism and risk isolation mechanism shall be established and custody of the assets shall be implemented. insurance capital shall preferentially be invested in Financial Products that are registered, issued, traded and transferred on a public platform.

9. An insurance company that invests in Financial Products shall satisfy the following conditions:

(1) having a solvency adequacy ratio of not less than 120% as at the end of the previous quarter;

(2) having a resolution approving the investment from the company's board of directors or the body authorised by the board of directors;

(3) having a sound investment decision-making and authorisation mechanism, risk control mechanism, business operation procedures, internal control systems and accountability system;

(4) its asset management department having rationally established Financial Product investment positions and having filled them with dedicated personnel;

(5) having established an asset custody mechanism and its asset management being compliant and transparent;

(6) its credit risk management capabilities satisfying the prescribed standards; and

(7) not having committed a major violation of laws or regulations during the last three years.

If an insurance company makes such investment by entrustment, it shall not be subject to the provisions of Items (4) and (6).

10. The book balance of the wealth management products, credit asset-backed securities, pooled fund trust plans, dedicated asset management plans and project asset-backed plans invested in by an insurance company shall, in total, not exceed 30% of the insurance company's total assets as at the end of the previous quarter. The book balance of the infrastructure investment plans and immovable asset investment plans invested in by an insurance company shall not exceed 20% of the insurance company's total assets as at the end of the previous quarter.

The book balance of a single wealth management product, credit asset-backed security, pooled fund trust plan, dedicated asset management plan or project asset-backed plan invested in by an insurance company shall, in total, not exceed 20% the offer size of the product in question; and that of a single infrastructure investment plan or immovable asset investment plan shall not exceed 50% of the offer size of the plan in question. The book balance of a single relevant Financial Product invested in by an insurance group (holding) company and its insurance subsidiaries shall, in total, not exceed 60% of the offer size of the product in question and the same shall apply mutatis mutandis to insurance companies and the insurance institutions invested in and controlled by them.

11. An insurance company shall conduct a substantial assessment of the risks of relevant Financial Products, rationally formulate a Financial Product allocation plan based on the liability characteristics, its investment management capabilities and risk management capabilities, carry out the corresponding internal review procedures and itself determine the products to invest in and the size of such investments, the term structure, credit spread and liquidity arrangement.

12. Depending on its investment management capabilities and risk management capabilities, an insurance company may either invest in the relevant Financial Products itself or appoint an insurance asset management company to do so on its behalf. If an insurance company entrusts such investment to an insurance asset management company, it shall, in accordance with provisions such as the Tentative Measures for the Administration of the Entrusted Investment of insurance capital, execute with a qualified insurance asset management company an entrusted investment management agreement specifying the parties' duties, rights and obligations.

13. When an insurance institution is to invest in a wealth management product, it shall fully assess the issuing bank's credit standing, operational and management capabilities, investment management capabilities and risk handling capabilities, pay attention to the investment scope and liquidity management of the product assets, and duly guard against compliance risks, credit risks and liquidity risks.

14. When an insurance institution is to invest in a credit asset-backed security, pooled fund trust plan, dedicated asset management plan, infrastructure investment plan, immovable asset investment plan or project asset-backed plan, it shall fully take into consideration the product's trading structure, the state of the underlying assets and credit enhancement arrangement, and duly guard against credit risks, liquidity risks, operational risks and legal risks.

15. When an insurance institution invests in a relevant Financial Product, it shall take full advantage of the supervisory function of investors, track the management and operation of the Financial Product on an ongoing basis, regularly assess the investment risks, adjust its investment limits, risk limits and stop-loss limits as appropriate and safeguard the safety of the assets. If a material investment risk, such as a default, arises in respect of a Financial Product, the insurance institution shall take effective measures to control the relevant risks and, in a timely manner, report the same to the China Insurance Regulatory Commission (CIRC).

16. When an insurance institution invests in a relevant Financial Product, it may not carry out an improper transaction with a concerned party, such as the funneling or diversion of benefits, and may not prejudice the interests of the company or the insured through affiliated transactions or otherwise.

17. An insurance company that invests in a relevant Financial Product shall submit quarterly reports and annual reports to the CIRC within 30 working days after the end of each quarter and by April 30 each year, respectively, and attach the following written materials thereto:

(1) investment and compliance details;

(2) risk management details;

(3) details of any affiliated transactions; and

(4) other prudential information as specified by the CIRC.

If an insurance company has appointed an insurance asset management company to invest in a relevant Financial Product on its behalf, it may include the reports specified in the preceding paragraph among the regular reports specified in the Tentative Measures for the Administration of the Entrusted Investment of insurance capital.

18. For the purposes of this Circular, if security is provided in the credit enhancement arrangement in the form of a guarantee, it shall be an unconditional, irrevocable and joint and several guarantee for the entire amount of the principal and interest, and the credit rating of the guarantor shall not be lower than that of the secured party; if it is provided in the form of a mortgage or pledge, title to the property serving as security shall be free and clear, shall not be encumbered by other security or be the subject of preservation measures, the appraised value thereof shall not be less than the principal and interest to be repaid and the necessary legal procedures shall have been carried out for providing the security.

For the purposes of this Circular, the balance of incoming proceeds from bond buybacks and assets in independent accounts shall be deducted from the total assets of an insurance company.

19. This Circular shall be effective as of the date of issuance. The Circular on the Investment of Insurance Funds in Infrastructure Bond Investment Plans (Bao Jian Fa [2009] No.43) shall be repealed simultaneously.