China released a revised regulation on securities insurance and underwriting on Oct 10 that gives insurance funds priority to subscribe to new shares offline, a move to benefit the public and improve market-oriented stock pricing.

The revised regulation says at least 40 percent of new shares placed offline should first seek public offering funds, social security funds and basic pension funds, according to the website of the Legislative Affairs Office of the State Council.

It adds that a certain proportion of new shares should also seek enterprise annuity funds and commercial insurance funds.

Under China's three pillar pension system, the first pillar is basic pensions led by the government and has the characteristic of wide coverage and low security. The second pillar involves enterprise annuities, and the third pillar is commercial endowment insurance.

"Previously, only public offering funds and social security funds could enjoy priorities to subscribe new shares offline, and now basic endowment insurance funds, enterprise annuity funds and commercial insurance funds have become new beneficiaries," says Hao Yansu, director of the school of insurance at Central University of Finance and Economics.

"It will mean more people have steady investment returns with low risks," he says.

Hao says buying new shares in China is a good investment program with low risks. In Europe, some professional institutions are in charge of endowment insurance funds, which gain more investment returns but bear higher risks.

Li Shaowei, vice-president of China Securities, says the participation of basic pension funds, enterprise annuity funds and commercial insurance funds can also help promote more market-oriented pricing of new shares.

"These insurance funds have strong financial strengths and professional capabilities, so they will help to make the new share pricing more reasonable and thus promote the healthy development of the Chinese capital market," says Li.

The revised regulation of securities insurance and underwriting also says online investors no longer need to pay in advance when subscribing to convertible bonds. They only need to pay when they receive final subscription quotas.

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