context: Financial regulators are encouraging commercial banks to issue perpetual bonds for recapitalisation. To facilitate market acceptance of this new initiative, People’s Bank of China announced a swap scheme for central bank bills and perpetual bonds. Insurance companies, as long-term investors in the financial market, will likely have an interest in perpetual bonds for stable and long-lasting returns.

On 25 Jan 2019, China Banking and Insurance Regulatory Commission (CBIRC) released ‘Notice on insurance companies investing in commercial bank recapitalisation bonds’, stipulating

  • insurance companies are allowed to invest in publicly traded capital bonds and perpetual bonds
  • publicly traded capital bonds and perpetual bonds issued by policy banks should follow government bond investment regulations
  • publicly traded capital bonds and perpetual bonds issued by commercial banks should follow non-collateral, non-financial enterprise bond regulations
  • qualifications for insurance companies investing in publicly traded commercial bank capital bonds and perpetual bonds
    • complete and prudent corporate governance
    • total assets no less than 1 tn and net assets no less than 50 bn
    • core first-class capital adequacy ratio no less than 8 percent, first-class capital adequacy ratio no less than 9 percent, capital adequacy ratio no less than 11 percent
    • AAA-rated or equivalent by domestic credit rating agencies
  • insurance companies should enhance credit risk management and be responsible for their own losses