Chinese regulators have allowed insurance companies to use credit derivatives to hedge against risks as part of efforts to encourage insurance funds to serve the real economy.

The purpose of using credit risk mitigation and credit protection tools should be confined to risk hedging, and insurance institutions should not be credit risk bearers, according to a notice by the China Banking and Insurance Regulatory Commission (CBIRC).

The notice requires insurance companies participating in the business be capable of using the derivatives to manage risks and to comply with related trading regulations.

Insurance firms should monitor and assess risks at regular intervals and file monthly, quarterly and annual reports to the CBIRC.

Through the move, regulators hope to enable insurance funds to offer more financing support to private businesses.

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