BEIJING — China’s top insurance regulator announced on Jan 24 a ban of insurers acquiring listed firms in concert with non-insurance parties, in a move to prevent radical stock investment and maintain financial market stability.
The China Insurance Regulatory Commission (CIRC) set new rules on insurers’ investment in the stock market, so that when insurance companies make major stock investment with non-insurer parties, they must use their own funds to make a purchase.
A purchase of at least 20 percent of stock in a listed company by an insurer is considered a major investment.
The new rules came in the wake of recent “barbaric” behavior of some insurers using leveraged money to buy shares of listed companies late last year. Triggering sharp volatility in the market, such moves annoyed corporate executives and caused individual investors to suffer.
The CIRC will take action when an insurance company, together with non-insurance parties, increases its holdings of a certain listed firm to 5 percent, such as suspending insurance funds to non-insurer parties acting in concert with the insurer.
Insurance firms are also not allowed to acquire listed companies or purchase a major stake, at least 20 percent, of their shares before gaining regulatory approval, according to the rules.
To prevent the radical investment of some players in the insurance sector, the CIRC ordered that an insurer’s investment in one single stock should not exceed 5 percent of its total assets at the end of the previous quarter.
Meanwhile, an insurer’s total equity investment should be less than 30 percent of its total assets at the end of the previous quarter.
The CIRC said that insurers should be friendly investors and maintain good communications with stake holders and management of the listed companies, so that insurance funds could better facilitate operations.
“Insurance companies should be financial investors in good faith, instead of making hostile takeovers,” said Xiang Junbo, chairman of the CIRC, in a meeting last month.