New provisions on insurance AMCs creating dedicated products

The A-share market has suffered from constant setbacks since 2018. Listed companies that pledge their shares as collateral for loans are exposed to liquidity risks, which seriously affects the healthy development of China’s real economy.

In this context, the China Banking and Insurance Regulatory Commission issued the Circular on Matters Relating to Creation of Dedicated Products by Insurance Assets Management Companies on 24 October 2018, in the hope of giving play to the advantages of insurance assets in long-term and steady investment, and helping mitigate the liquidity risks of listed companies pledging shares as collateral for loans.

The circular elaborates five aspects:
(1) It sets conditions for product managers and requires that they should be qualified for issuing portfolio insurance assets management products; (2) it specifies the investment targets of the dedicated products, mainly including stocks of listed companies, bonds publicly issued by the listed companies and their shareholders, and non-publicly issued exchangeable bonds; (3) it lays emphasis on the exit arrangements of the dedicated products. They may exit steadily mainly by shareholder transfer, buy-back by the listed companies, block trading, agreement-based transfer, and other means; (4) it lays down measures to control risks of the dedicated products and puts forward specific requirements in terms of dedicated account management, blackout period, duration, investment concentration, registration in advance, information disclosure, related-party transactions, etc.; and (5) it clarifies that the dedicated products are excluded from calculation of investment proportion of equity assets of the insurance companies.

Jiang Tao is a partner at Merits & Tree Law Offices