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By Shangguan Zhoudong (chinadaily.com.cn)
Updated: 2007-07-09 17:31

China's insurance regulator may allow insurers to invest in unsecured corporate bonds, in an effort to diversify their investment channels, the China Business Post reported today.

The move will be good news for insurers because unsecured corporate bonds carry higher yields.

Currently, insurers are not allowed to invest in unsecured corporate bonds due to risk concerns, according to Sun Jianyong, director of theChina Insurance Regulatory Commission's (CIRC) insurance fund management department.

Insiders said the regulator is strengthening insurers' risk management skills and will expand their investment in bonds, including the unsecured corporate bonds.

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"Unsecured corporate bond is a trend, and most corporate bonds overseas are unsecured," Hu Yuhang, a researcher with CITIC Securities Co Ltd, said.

According to theChina Securities Regulatory Commission(CSRC), listed companies who can issue unsecured bonds must be large-sized stated-owned enterprises and have outstanding major businesses, stable cash flow and sound credit records.

"Compared with secured bonds, the holders of unsecured corporate bonds must bear higher risks, but these bonds are highly attractive due to higher returns," an insider with the CSRC said.

Statistics from the CIRC show that, by the end of 2006, insurance fund's investment in bond market accounted for 53.43 percent of its total amount, up two percentage points from 2005.

"Insurers invest most of their fund in treasury bonds, but they like enterprise bonds best," said Pei Guang, deputy director of Statistical Information Department of the CIRC.

"Investing in unsecured corporate bonds will be a major task in the second half of this year to diversify investment channels," Liu Jiade, vice president ofChina Life InsuranceCo Ltd. said.

In August 2005, the CIRC releases a measure governing insurance fund's investment in bonds. According to the measure, the investment must be guaranteed by banks, special state funds and non-financial enterprises with their net asset of more than 20 billion yuan at the end of 2004.