China Financial Regulation Alert – Insurance
第5期 —— 2011年1月至6月
Issue 5 —— January 2011 to June 2011
The China Financial Regulation Alert series for Banking, Insurance and Securities & Futures contain major laws and regulations recently issued in the PRC governing mainly the banking, insurance, securities & futures, mutual fund, private equity, guarantee and trust sectors. This publication is a summary of public information, the accuracy of which has not been verified by KPMG.
Circular from CIRC on the Issuance of the Rules of Preparation and Submission of Insurers' Solvency Report —— Q&A NO. 11: Independent Third-party Verification of Dynamic Solvency Testing
The circular mainly replies to the inquiries from insurance entities which are required to make solvency testing, which cover the following issues: the definition of the independent external third party, and its relevant standards when performing the test, the scope for the solvency testing.
Circular from CIRC on Issues related to Regulating Insurance Companies’ Guarantees to Foreign Entities
The circular lays out the scope of the prohibition of insurance companies providing guarantees to foreign entities, and requires insurance companies to disclose the guarantees in the financial statements, make comprehensive examination, terminate all prohibited guarantees within a given period, as well as report to the CIRC about the examination results.
Circular from CIRC on Issues related to Dynamic Solvency Testing
The circular specifies the unfavorable conditions under which the solvency testing must be undertaken. The unfavorable conditions for property insurance companies include the 5% increase in the loss rate and the expense rate and the 20% increase in premium growth ratio. The unfavorable conditions for life insurance companies include decrease of returns on investments, increase of the expense rate and dividend payments.
Circular from CIRC on Soliciting Public Comments on the Interim Measures for Management of Insurers’ Transfers of Insurance Business (Exposure Draft)
The Exposure Draft in the circular lays out the general principles of insurance transfer business, the required conditions for the assignee insurance companies, and regulations of the business operation and approvals process.
CIRC issued Administrative Measures for Foreign Insurance Institutions’ Representative Offices in China (exposure draft)
The Exposure Draft sets out the regulations of the relevant issues for foreign Insurance institutions’ representative offices, including the administrative approval process of the foundation, business operation and supervision, and legal responsibilities.
Circular from CIRC on Issuance of the “Implementation Plan for rectification of the issue ‘Small Treasuries’ of the Insurance Industry in 2011” – Bao Jian Fa  No.15
The circular sets out the general guidance, mission objectives, time line, and specific process requirements in rectification of the issue “Small Treasuries”, and also specifies five implementation stages including comprehensive review, supervision and sampling test, corrective action implementation, institution building and summary reporting.
CIRC Solicits Public Opinions on the Provisions on Supervising the Engagement of Financial Institutions to Undertake Insurance Agency Business by Insurers (Exposure Draft)
The Exposure Draft sets out the qualification of the undertaking insurance agency business, the operation criteria, supervision and inspection, and legal responsibilities of the engaged financial institutions.
Circular from CIRC on Modifying the Interim Measures for Managing Insurance Asset Management Companies
The circular modifies the definition of Insurance Asset Management Company, and specifies the required conditions of the key sponsors, the limit of register capital, the scope of business, and regulations related to establishing branches.
Circular from CIRC on the Issuance of Guidelines for Inspection and Acceptance of Insurance Start-ups
The circular specifies the applicable scope of acceptance of the opening of insurance companies, the required application materials of the opening, the standard and workflow for on-site acceptance.
Circular from CIRC and CBRC on Issues Related to Enquiries by Insurance Regulators over Accounts of Insurance Entities and Related Units and Individuals with Financial Institutions
The circular requires each insurance regulators to comply with laws and regulations, strictly perform the approval procedures, and comply with confidentiality when inquiring accounts of related organizations and individuals from financial institutions. The circular specifies related financial institutions should also cooperate for the enquiry and comply with confidentiality agreement.
Circular from CIRC on the Issue of Provisional Administrative Measures for Variable Annuity Insurance
The circular specifies the rules relating to two management patterns of variable annuity insurance：portfolio hedge of the internal model and equilibrium model of fixed multiplier. The circular also clarifies the requirements of the liability reserve appropriation and disclosure.
Letter from CIRC on Soliciting Comments on the Administrative Measures for Insurers’ Capital Deposits (Exposure Draft)
The Exposure Draft in the letter specifies the requirements of depositing and supervision of Insurance companies’ capital deposits, and presents the template of agreement, disposal, and the recording form of capital deposits.
Circular from CIRC on Soliciting Comments on the Administrative Measures for Insurers’ Fixed-Term Subordinated Debt (Exposure Draft)
The Exposure Draft in the circular specifies the application requirements, collection, business operation, reimbursement, disclosure and supervision of Insurers’ fixed-term subordinated debt, and also clarifies the contact information and deadline of the feedbacks.
CIRC Solicits Public Comments on the Administrative Measures for Insurance Terms and Premium Rates of Life Insurance Companies (exposure draft)
The Exposure Draft specifies the relevant issues of insurance terms and premium rate, including the designation and classification, approval and recording, modification and termination, the contact information and the deadline of feedbacks.
Other major regulations
· 财政部金融司关于金融企业国有资产评估监督管理有关问题的通知- -财金(2011)59号
Circular from MOF on Issues Related to Supervision and Management of Valuation of Financial Institutions’ State-owned Assets
This notice specifies the scope of valuation, valuation items, documents submitted for approval and acceptance applications. The circular also clarifies selection of the valuation agency.
Circular from SAFE on Issues related to Further Strengthening the Administration of Foreign Exchange Business – Hui Fa  No.11
The circular aims to avert financial risks brought about by cross-border capital flows. It states several requirements. Firstly, further strengthening the administration of the comprehensive positions of banks in the settlement and sales of foreign exchange, further adjustments are made to the lower limits of banks with outstanding negative positions on a cash basis on November 8, 2010. In cases where the current positions of banks are lower than the adjusted lower limits, the relevant positions shall be increased progressively to be adjusted to an amount within the limit before September 30, 2011. This obligation is not applicable to foreign banks which do not conduct Renminbi business and manage by specific accounts for settling and selling Renminbi. Secondly, the management of foreign exchange for entrepôt trade should be enhanced. Gains from foreign exchange under entrepôt trade can only be settled or transferred after an enterprise makes an external payment for the entrepôt trade. Thirdly, the basic proportions of payments in advance and payments being extended for over 90 days are lowered to 20 percent of the total export receipts or import payments in foreign currencies during the last 12 months. Lastly, the management of external short-term debts of financial institutions should be enhanced by lowering the indicative size of external short-term debts of domestic institutions in 2011, and by lowering the indicators of the remaining external short-term debts of banks which have more interbank deposits and loans.
Circular from MOF on Issuing Measures for Performance Appraisals of Financial Institutions－Cai Jin  No. 50
The measures further standardise the performance appraisals of financial institutions by specifying four major indicators to evaluate institutions’ performances. The evaluation results will then be used to determine the remuneration for the institutions’ persons in charge, and to reinforce the institutions’ operation and management to enhance the monitoring of their financial affairs. Pursuant to the measures, the indicators to evaluate financial institutions’ performance include: a profitability indicator which mainly reflects an institution’s input and output levels and the profit quality in a specific operating period; an operation growth indicator which mainly reflects an institution’s capital appreciation and operation growth level; an asset quality indicator which mainly reflects the efficiency of an institution in using economic resources, asset management level and asset security; and a solvency indicator which mainly reflects an institution’s liability level, solvency and the risks it faces in debts. The measures also set out the standards and marking methods of performance appraisals, as well as the principles of raising and lowering scores. The Indicators and Score Sheet for Performance Appraisals of Financial Institutions, and the Explanation of Indicator Formulas for Performance Appraisals of Financial Institutions are also issued along with the measures.
· 人力资源和社会保障部、银监会、证监会、 保监会发布《企业年金基金管理办法 》--人力资源和社会保障部、银监会、证监会、 保监会令(2011)11号
Administrative Measures for Enterprise Annuity Funds Issued by the Ministry of Human Resources and Social Security, CBRC, CSRC and CIRC - Order  No.11 of the Ministry of Human Resources and Social Security, CBRC, CSRC and CIRC
The Measures have refined and expanded the scope of asset investments for enterprise annuity funds as follows. The proportion of fixed-income investment increases from not more than 50% to not more than 95%, whereas that of liquid investment decreases from not less than 20% to not less than 5%. And the 20% ceiling on the proportion of stock investment is cancelled. The enterprise annuity fund property should be accounted for as a portfolio and measured at fair value. Moreover, fixed income products such as contracted deposits and treasury notes as well as bonds and funds should not be higher than 95% of the net worth’ of the portfolio for enterprise annuity funds. However, liquid products such as PBOC bills and bond repurchase should not be lower than 5% of the net worth of the portfolio for enterprise annuity funds. The Measures also sets out new requirements for the minimum registered capital for corporate trustees, account managers, custodians and investment managers of enterprise annuity funds
Circular from PBOC on Openly Soliciting Public Opinion on the Administrative Provisions on System Testing and Certification for Non-Financial Institutions’ Payment Services
The provisions aim to strengthen IT security management and risk prevention for non-financial institutions’ payment services, and ensure the objectivity, timeliness, comprehensiveness and effectiveness of the system testing and certification.
Circular from MOF on Issuing the Template of 2010 Regulatory Financial Statements of Financial Institutions – Cai Jin  No.147, Cai Jin  No.150, Cai Jin  No.151, Cai Jin  No.152
The circular specifies the content, reporting scope and requirements, and submission requirements for financial institutions’ regulatory financial statements in 2010.
Source: China State Council, MOF, PBOC, CIRC, SAT, China Insurance Association, and other regulators’ websites.
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