Chinese insurers fell in both Shanghai and Hong Kong trading yesterday after the regulator tightened rules governing the issue of subordinated debt to prevent financial risks in the sector.

Insurers who plan to raise funds through subordinated debt, a type of debt that offers a higher yield but has the lowest priority should a company fall into receivership or bankruptcy, must be operating for three years, the China Insurance Regulatory Commission said in a statement on its website.

The CIRC also halved the size of the outstanding subordinated debt an insurer is allowed to have to 50 percent of its total assets as of the end of the previous year.

Insurance groups are banned from issuing such debt on behalf of the insurers they own, and insurers cannot use the money raised through the debt to cover operational losses, according to the statement.

"The measure will help to improve the capital structure of the industry and increase companies' ability to hedge against risks," the CIRC said. "It will also help prevent risks spreading from the insurers to banks, and reduce systemic risks in the financial sector."

China Life Insurance Co, the largest insurer in China, tumbled 6.7 percent in Hong Kong and 2.3 percent in Shanghai.

Ping An Insurance Co and China Pacific Co also declined more than the benchmark stock indices in both bourses.

Analysts said that the new rules will also pile the pressure on liquidity for some insurance companies.