Chinese regulator to review insurers' bond transactions

All insurance institutions must submit records of their bond trades by the end of March, as the top insurance regulator moves to address rising credit risks in the bond market.

The data will be reviewed to paint a clear picture of bond investment by insurers and highlight potential risks, thus addressing issues at the source, according to a statement by China Insurance Regulatory Commission (CIRC).

So far, insurance funds have been channeled into bank deposits, bonds, stocks and other fields, among which, the majority are parked in the bond market.

CIRC data showed, by the end of February, the balance of insurance assets was 13.85 trillion yuan (about 2.01 trillion U.S. dollars), up 3.44 percent from the beginning of 2017.

This year, insurers and regulators will continue to explore solutions to ensure asset safety and increase asset value.

The regulator is aware of the risks.

"About 80 percent of insurance funds were used to buy credit products, such as corporate bonds, associated with credit risks. This is a default-prone period, said Chen Wenhui, vice chairman of CIRC, adding that defaults had already occurred in some bonds and trust products.

"In order to secure more yields amid an asset shortage, insurers have to lift their risk tolerance and (channel) more assets into high-risk and high-profit markets," said Chen.

He stressed that default risks should not be underestimated due to excessive leverage in the corporate sector and expansion of the bond market.

In fact, the regulator has taken measures to enhance liability management of insurance assets and reinforce supervision of insurance investment.

Risks in China's insurance sector is generally controllable as more than 90 percent of corporate bonds purchased by insurance assets are rated AAA or AA, according to the Insurance Asset Management Association of China.

The CIRC-led screening is intended to give an overview of Chinese insurers' bond transactions, and assist regulators in the formulation of a road map and policy timetable, according to the top regulator.

"Asset-liability management (ALM) is the mainstay of stable operations for insurers, and risk management," said Chen.

The CIRC will continue to apply targeted and effective oversight through ALM on different accounts.

"The insurance industry will seek to improve the market exit system and prevent bad money from driving out good money," said Zhu Junsheng, a researcher with the Development Research Center of the State Council.

Insurers that are not adequately qualified or abuse the screening system, will be suspended or have their business qualifications annulled, Zhu suggested.