1. Reform Plan for the Supervisory Responsibilities for P&C Insurance Companies and Reinsurance Companies
On July 16, 2020, CBIRC published the Reform Plan for the Supervisory Responsibilities for P&C Insurance Companies and Reinsurance Companies, which took effect on August 1, 2020.
The Plan divides 87 P&C insurance companies and 13 reinsurance companies into two groups, one to be supervised directly by CBIRC and the other to be supervised by CBIRC local bureaus. Insurance companies directly supervised by CBIRC include reinsurance companies, agricultural insurance companies, on-line insurance companies and most of the P&C companies controlled by insurance group companies. For locally supervised insurance companies, their local CBIRC bureaus will be responsible for approving changes to their names, business addresses, registered capital, articles of association and shareholders holding 5% or more, issuance of term bonds and capital replenishment bonds, and qualifications of their directors, supervisors and senior management personnel. CBIRC may, depending on the actual circumstances, entrust CBIRC local bureaus to handle relevant supervisory work.
2. Draft Implementation Rules on Administrative Licensing and Filing of Insurance Intermediaries
On August 18, 2020, CBIRC published the draft Implementation Rules on Administrative Licensing and Filing of Insurance Intermediaries for public comments.
Foreign-invested professional insurance intermediaries should also comply with the Rules when handling relevant licensing and filing procedures.
The minimum registered capital for nationwide professional insurance agency and brokerage companies will remain to be RMB50 million, while the minimum registered capital for regional professional insurance agency and brokerage companies will be increased from RMB10 million to RMB20 million. The minimum registered capital for nationwide and regional insurance adjustor companies will remain to be RMB 2 million and RMB 1 million respectively.
The Rules require the applicants to include in their application packages, the policies for protection of consumer rights and interests, and a disscussion of the status of their information security protection in relation to their business and financial information systems.
The Rules require senior management candidates of professional insurance agency companies to have engaged in financial work for no less than 3 years or economic work for no less than 5 years.
3. Draft Provisions on the Management of Qualifications of Directors, Supervisors and Senior Management Personnel of Insurance Companies
On August 21, 2020, CBIRC published the revised draft Provisions on the Management of Qualifications of Directors, Supervisors and Senior Management Personnel of Insurance Companies to solicit comments from the industry.
Compared to the current rules, the Draft has the following important changes:
(1) A filing with CBIRC instead of an approval will be required for the following senior management personnel: (i) chief compliance officer, chief financial officer and chief audit officer of head office; (ii) deputy general managers and assistant general managers of branches other than provincial branches and central sub-branches; and (iii) managers of sub-branches and sales offices. For such personnel, the insurance company should, within ten days after they take office, make a filing with CBIRC.
(2) The Draft prohibits the following: concurrently serving as chairman of the board of directors of two insurance companies (unless they belong to one insurance group company or it is the chairman of an insurance group company also serving as the chairman of a subsidiary), concurrently serving as chairman and general manager of one insurance company or serving more than three senior management positions in one insurance company (unless the positions to be concurrently held are secretary of the board, chief compliance officer, chief actuary, chief financial officer, and chief audit officer of head office and other positions with particular functions as stipulated by CBIRC).
(3) Certain additional qualifications and disqualifications are added. For example, directors, supervisors and senior management personnel of an insurance company should have the time and conditions necessary for their normal performance of duties within China, and a candidate will be disqualified if he or she has been warned by CBIRC or received administrative penalties within the past 2 years before such application.
(4) Secretary of the board should have no less than five years of experience in financial work or no less than eight years of experience in economic work.
(5) If a director, supervisor or senior management member has already obtained approval of his/her qualifications, he/she will not need to apply for a qualification approval again unless there is a gap of one year or more if: (i) he/she moves to or concurrently serves as a senior management member of any entity of equal or junior rank within the same insurance company; (ii) a director or supervisor will become a director (other than chairman) or supervisor in another insurance company of the same type (P&C, life, or reinsurance); or (iii) he/she will serve as a senior management member of an entity of equal or junior rank within another insurance company of the same type. However, if the qualification requirements for the new position are higher than those for the previous position, a new qualification application should submitted to CBIRC.
(6) The interim responsible person can serve for a period of six months as opposed to three months under current rules, and can be replaced for one time (but such six months should be calculated accumulatively).
4. Administrative Measures for Banking and Insurance Institutions’ Financial Services in Response to Emergency Events
On July 3, 2020, CBIRC promulgated the Administrative Measures for Banking and Insurance Institutions’ Financial Services in Response to Emergency Events, which took effect immediately. The term “emergency events” and “significant emergency events” have the same meanings as defined in the PRC Emergency Response Law.
Banking and insurance institutions should establish an emergency response management system. The board of directors is the decision-making body for emergency responses, and bears the ultimate responsibility. The senior management is responsible for implementing the emergency response management policies approved by the board of directors. Banking and insurance institutions should establish a committee composed of senior management and heads of the relevant departments for emergency responses and a corresponding commanding center. Banking and insurance institutions can appoint a professional committee such as a business continuity management committee to take charge of the management of emergency responses.
Banking and insurance institutions should carry out emergency response drills at least once every three years. They should carry out emergency response drills on disaster backups and other key resources or important business functions at least once a year.
Banking and insurance institutions should establish and perfect their emergency response management system and report to CBIRC within 6 months after the date of these Measures.
5. Draft Administrative Measures on Solvency of Insurance Companies
On July 30, 2020, PBOC and CBIRC jointly published the draft Administrative Measures on Solvency of Insurance Companies. The Measures apply to insurance companies, insurance holding companies, captive companies and mutual insurance organizations, and, if officially promulgated, will supersede the existing rules with the same name, in order to accord with the C-ROSS system.
(1) Solvency regulatory indicators. Solvency regulatory indicators include: core solvency ratio (ratio of core capital to minimum capital), comprehensive solvency ratio (ratio of actual capital to minimum capital) and integrated risk rating. A company is considered as a solvency compliant company if it has a core solvency ratio of no less than 50%, a comprehensive solvency ratio of no less than 50% and an integrated risk rating of no less than B.
Core capital refers to the capital that can assume losses during its continuous operation and its liquidation process; actual capital refers to the financial resources that can assume losses during its continuous operation or its liquidation process; minimum capital refers to the required amount of capital for the prudential regulation purpose, which will ensure that the insurance company will have appropriate financial resources to mitigate the adverse effects from risks that can be quantified into capital requirements.
(2) Solvency data examination. CBIRC and its local bureaus will, on a quarterly basis, examine the quarterly solvency reports and other solvency information and data submitted/disclosed by insurance companies. Such examination will focus on insurance companies whose core solvency ratios are lower than 60% or comprehensive solvency ratios are lower than 120%.
(3) Regulatory measures. CBIRC should take the following reguloatory measures against insurance companies whose core solvency ratios are lower than 50% or comprehensive solvency ratios are lower than 100%: supervisory talk; requesting plans for preventing solvency deterioration or for improving risk management; restricting remuneration of directors, supervisors and senior management members; and restricting profit distribution to shareholders. CBIRC may, at its own discretion and considering the specific reasons for the decline in solvency, also take other measures such as requiring a capital increase, restricting business scope or growth, requiring adjustment to its investment and etc.
6. Circular on Regulating the Health Management Services of Insurance Companies
On September 6, 2020, CBIRC General Office published the Circular on Regulating the Health Management Services of Insurance Companies, superseding the Notice re Matters concerning Health management Services Provided by Health Insurance Products. The Circular provides for certain more detailed rules concerning the relevant provisions of the Administrative Measures on Health Insurance promulgated by CBIRC on October 31, 2019. Health management services provided by insurance companies refer to monitoring, analyzing and assessing clients’ health condition, intervening in health risks, preventing and controlling diseases and maintaining health, including health check-ups, health consulting, health promotion, disease prevention, chronic disease management, medical visit service, rehabilitation nursing, etc.
When providing health management services, an insurance company should: (i) reasonably set out the contents and prices of health management services based on its service capabilities, the clients’ needs and the features of health insurance business; (ii) proactively inform clients of the contents, processes, standards, time periods, matters calling for special attention and potential risks concerning the health management services, and obtain clients’ informed consent, and inform clients of the participation of any third-party service providers (if any); (iii) obtain clients’ consent before obtaining clients’ health data; (iv) not provide any client’s personal information or health data to any third party without clients’ prior consent, and protect data security and personal privacy in accordance with law; and (v) establish a health management service evaluation, feedback and complaint handling mechanism. When an insurance company provides health management service separately, a health management service agreement should be executed, which should clearly set forth the service contents and prices; and the health management services should not be bundled with health insurance products or forced upon its clients.
The insurance company should publicly disclose relevant information of its health management services, and, on its official website, disclose the insurance products containing health management services, health management services provided separately, and the relevant cooperating institutions, etc. The insurance company’s head office should conduct regular inspections of the health management services provided by its branches and report the results to CBIRC or its local bureau. Statistical information related to health management services should be reported semi-annually. Half-year health management service statistics should be submitted by the end of each July, and full-year service statistics and service reports should be submitted by the end of each January.
7. Administrative Measures for Insurance Clauses and Premium Rates of P&C Insurance Companies (Revised Draft)
In June 2020, CBIRC published the Administrative Measures for Insurance Clauses and Premium Rates of P&C Insurance Companies (Revised Draft), seeking comments from the industry. According to the Revised Draft, P&C insurance companies should formulate rules for the development and management of insurance clauses and premium rates, establish a mechanism for the review of related major issues, and prepare a summary analysis table and report it to CBIRC by the end of each March. Insurance clauses and premium rates that are subject to CBIRC approval should not be used before receipt of CBIRC approval. Insurance clauses and premium rates that are subject to a record filing with CBIRC should be filed with CBIRC or CBIRC local bureaus within 10 working days after their use.
8. Guiding Opinions on Comprehensive Reform of Auto Insurance
On September 2, 2020, CBIRC published the Guiding Opinions on Comprehensive Reform of Auto Insurance, which took effect on September 19, 2020.
(1) Enhancing protection of compulsory auto insurance. The Opinions increase the limit of liability for compulsory auto insurance from RMB122,000 to RMB200,000, within which the limits for compensation for death, injury and disability and for medical expenses are increased while the limit for property damage remains unchanged. The Opinions also increase the maximum discount for compulsory auto insurance premiums from 30% to 50% for consumers who received no claim payment under their compulsory auto insurance.
(2) Expanding and optimizing commercial auto insurance. The Opinions support the industry to increase the limit of liability, expand the scope of protection, and diversify commercial auto insurance products:
Guide the industry to expand main coverage to cover the following 7 areas: whole car stolen or robbed, broken glass alone, spontaneous combustion, engine wading, zero deductible, named repairer, and inability to find the third-party liable for indemnity; and support the development of riders such as wheel-stolen insurance and coverage on medicine not included in the basic medical insurance;
Guide the industry to reasonably delete certain exclusions that are likely to give rise to claim disputes in practice and certain deductibles such as accident liability deductible and deductible for failure to find the third-party liable and etc.;
Support the industry to formulate model terms and conditions for new energy auto insurance, driver/passenger accident insurance, automobile extended warranty insurance;
Explore and develop innovative products such as usage based insurance for new energy automobiles and qualified traditional automobiles;
Formulate model terms and conditions for value-added services for auto insurance including inspection assistance, roadside assistance, driving service, safety inspection and etc.
Guide the industry to decrease the additional expense rate for commercial auto insurance from 35% to 25%, and to increase the expected loss ratio from 65% to 75%.
(3) Record filing and approval. If a P&C insurance company uses model terms and conditions and premium rates for commercial auto insurance, a record filing with CBIRC will suffice. An approval will be needed if a P&C insurance company develops innovative new terms and conditions and premium rates for commercial auto insurance.
9. Circular on Matters concerning Optimizing the Regulation of Equity Assets Allocation of Insurance Companies
On July 17, 2020, CBIRC General Office published the Circular on Matters Concerning Optimizing the Regulation of Equity Assets Allocation of Insurance Companies. The Circular sets different caps on the equity asset investment balance for insurance companies with different comprehensive solvency ratios as of last quarter end, which caps range from 10% to 45% of the insurance company’s total assets as of last quarter end. If its comprehensive solvency ratio is lower than 100% as of last quarter end, the insurance company should stop increasing its equity asset investment immediately.
An insurance company should not hold more than 10% shares of a publicly-listed company, unless otherwise permitted or approved by CBIRC. An insurance company’s equity asset investment balance should not exceed 15% of its total asset as of last quarter end, if it is under any of the following circumstances: (i) it is a life insurer with less than 100% liability reserve coverage ratio as of last quarter end; (ii) its fund usage incurred a significant risk event during the most recent year; (iii) it is relatively weak in asset liability management and asset liability matching; (iv) it has potential material risks or has been listed by CBIRC as a major target for regulatory action; (v) it has a record of being penalized by CBIRC due to material violation of laws and regulations within the most recent 3 years; or (vi) other circumstances prescribed by CBIRC. When an insurance company’s comprehensive solvency ratio substantially decreased, or its equity asset investment balance exceeds the relevant caps due to regulatory penalties, accidents, market changes, etc., it should report to CBIRC within 5 business days as of last quarter end, submit a feasible rectification plan, and meet regulatory requirements within a 6-month period.
10. Circular on Issuing Three Documents Including the Measures for Insurance Funds’ Participation in Financial Derivatives Trading
On June 23, 2020, CBIRC General Office published the Circular on Issuing Three Documents Including the Measures for Insurance Funds’ Participation in Financial Derivatives Trading which has superseded the previous Interim Measures for the Participation of Insurance Funds in Financial Derivatives Trading and the Provisions on the Participation of Insurance Funds in Stock Index Futures Trading. The Circular applies to insurance group (holding) companies, insurance companies and insurance asset management institutions (collectively, “Insurance Institutions”).
Compared to previous rules, the Circular has made the following major adjustments to the regulatory rules concerning the participation of insurance funds in financial derivatives trading:
When an insurance company uses its self-owned funds to participate in derivatives trading, its comprehensive solvency ratio as of last quarter end should not be lower than 150%, and its asset-liability management evaluation score as of last year end should not be lower than 85. When an insurance company entrusts insurance asset management institutions or other professional managers to participate in derivatives trading, its comprehensive solvency ratio as of last quarter end should not be lower than 120%, and its asset-liability management evaluation score as of last year end should not be lower than 60. Insurance institutions are no longer required to submit monthly reports and should submit quarterly reports on risk exposure as of the quarter-end, risk hedge, compliance and etc. The related audit reports should be submitted semi-annually instead of quarterly.
For insurance funds’ participation in treasury bond futures trading or stock index futures trading, the following requirements should be followed:
(1) Trading of treasury bond futures should be for the purpose of hedging or avoiding risks concerning existing assets or interest rate risks due to asset-liability mismatch, and should be used for hedging risks of assets to be purchased within the next 6 months (for treasury bond futures) or 3 months (for stock index futures), or locking in such assets’ future price; if such assets are not purchased within 6 months, the relevant derivatives should be terminated, liquidated or closed out within 15 (for treasury bond futures) or 10 (for stock index futures) trading days.
(2) It should have IT systems that meet relevant requirements and a sufficient number of professionals, and the professionals should pass the qualification examination for futures practitioners and certain position holders should have corrsponding experience;
(3) When insurance funds participate in treasury bond futures trading, the futures company selected should have a history of at least 5 years, requisite net capital and class A ranking in futures companies regulatory classification;
(4) If the insurance institution’s positions no longer meet relevant ratio requirements due to market fluctuations or other external causes, it should adjust its position accordingly within 15 (for treasury bond futures) or 10 (for stock index futures) trading days, and should report the same to CBIRC and elaborate on how the incidents were caused and handled in its quarterly report.
11. Notice on Matters Concerning Investment of Insurance Funds in Debt-to-Equity Swap Investment Schemes
On April 16, 2020, CBIRC issued the Notice on Matters Concerning the Operation of Asset Management Business by Financial Asset Investment Companies, which includes comprehensive rules on debt-to-equity swap investment schemes and permit insurance funds to be invested in debt-to-equity swap investment schemes offered by financial asset investment companies. On September 4, 2020, CBIRC issued the Notice on Matters Concerning Investment of Insurance Funds in Debt-to-Equity Swap Investment Schemes (the “Notice”). According to the Notice, when making insurance fund investment in debt-to-equity swap investment schemes, insurance companies should comply with the relevant qualification, reporting and other requirements under the Notice on Investment of Insurance Funds in Relevant Financial Products issued by CBIRC in 2012.
(1) If a debt-to-equity swap investment scheme has a tiered structure of interest units, insurance funds should be invested in preferred units. An insurance group (holding) company or an insurance company’s investment amount in a single debt-to-equity swap investment scheme should not exceed 50% of the size of such scheme, and, together with the investment by its affiliated parties, should not exceed 80%.
(2) Debt-to-equity swap investment schemes in which insurance funds are invested should be classified as equity assets if their investment in equity assets accounts for no less than 80% of their total investment on a look-through basis, otherwise they should be classified as other financial assets.
12. Portfolio Insurance Asset Management Products Implementation Rules, Debt Investment Plan Implementation Rules and Equity Investment Plan Implementation Rules
On March 25, 2020, CBIRC published the Interim Administrative Measures for Insurance Asset Management Products. In order to implement the measures, on September 11, 2020, CBIRC published the Portfolio Insurance Asset Management Products Implementation Rules, the Debt Investment Plan Implementation Rules and the Equity Investment Plan Implementation Rules.
Portfolio Insurance Asset Management Products Implementation Rules
(1) Registration. Issuance of the first portfolio product by an insurance asset management company is no longer subject to CBIRC approval, and only requires a registration filing with CBIRC before its issuance.
(2) Scope of Investment. Portfolio products in which insurance funds are invested should comply with the rules governing the use of insurance funds, and the scope of investment portfolio of products in which no insurance funds are invested can be stipulated in the relevant contract.
(3) Selling products to natural persons. Insurance asset management companies and sales agencies selling portfolio products to natural persons should conduct such sales by reference to the relevant sales requirements for the same types of products under the Measures for the Supervision and Administration of Wealth Management Business of Commercial Banks.
(4) Prohibited activities. Insurance asset management companies are prohibited from conducting or participating in cash pooling business with features such as rolling issuance, mixed operation, and separate pricing.
Debt Investment Plan Implementation Rules
(1) Registration. Insurance asset management companies should register their debt investment plans before their issuance.
(2) Supplementary funds. When debt investment plans invest in infrastructure projects, up to 40% of the raised funds can be used to supplement the working capital of the financed entity.
(3) Risk management. Insurance asset management companies should establish a full-time post-investment management team, separate from investment and issuance functions, form a sound post-investment management system, and improve risk alert mechanisms and emergency response plans for risk events.
Equity Investment Plan Implementation Rules
(1) Registration. Insurance asset management companies should register their equity investment plans before their issuance.
(2) Scope of investment. Equity investment plans can invest in equity interests of unlisted companies, private equity investment funds, venture capital funds, private placement of public companies, block transactions, and negotiated trades, as well as convertible preferred shares, convertible bonds, and other assets approved by CBIRC.
(3) Proportion requirements. Investment in private equity funds and venture capital funds should not exceed 80% of the size of the equitying investment plan.
(4) Prohibited activities. The parties to equity investment plans should not allow insurance funds to exercise control over unlisted companies through equity investment plans, or provide any form of guarantee for the principal and investment return.
13. Draft Data Security Law
On June 28, 2020, the Standing Committee of the National People’s Congress published the draft Data Security Law. If officially promulgated, it will become the basic law in the data protection field, setting forth various basic rules for data security protection and management, and will apply to not only those data activities that are carried out within the PRC (including data collection, storage, processing, use, provision, transaction, disclosure, etc.), but also those data activities that are carried out by organizations and individuals outside of the PRC and harm the national security and public interests or lawful rights and interests of PRC citizens and organizations.
Data classification and important data. The draft Data Security Law sets forth the requirements for the classified protection of data, and requires particular protection of important data. Important data processors should maintain a management department and data security responsible person, conduct risk assessment in accordance with rules and submit a risk assessment report to relevant competent authorities. The report should cover the types and quantities of important data, collection, storage, processing, use of such data, and data security risks and solutions, etc.
Data transactions. Institutions engaged in data transaction intermediary services should require data providers to explain their sources, review the identities of both parties to the transaction, and maintain records of such review and transactions.
Data security review. The PRC will establish a data security review system to conduct national security review of data activities that affect or may affect national security.
Cross-border data flow. The PRC will actively carry out international cooperation in the data sector, participate in the formulation of international rules and standards concerning data security, and jointly promote the safe and free flow of data across borders.
Data retrieval. Where overseas law enforcement agencies request retrieval of data stored within the PRC, relevant organizations and individuals should report to relevant competent authorities and should not provide such data before obtaining approval.
Countermeasures. Where any country or region adopts discriminatory prohibitions, restrictions or other similar measures against the PRC in respect of investment and trade related to data and data development and utilization technologies, the PRC may take corresponding measures against such country or region in light of actual circumstances.
14. Guiding Opinions on Implementing the Cybersecurity Classified Protection System and Critical Information Infrastructure Security Protection System
On September 4，2020，the PRC Ministry of Public Security (“MPS”) promulgated the Guiding Opinions on Implementing the Cybersecurity Classified Protection System and Critical Information Infrastructure Security Protection System.
Cybersecurity classified protection. The security protection classification of a new network should be determined during the planning and designing phase. Network operators above the third class should entrust a qualified classification evaluation agency to conduct an annual evaluation of cybersecurity classification.
Critical information infrastructure security protection. Supervisory and regulatory departments for important industries and sectors such as public communications and information services, energy, transportation, water conservancy, finance, public services, e-government, defense-related scitech industries should formulate rules for defining critical information infrastructure and report to the MPS for records. Critical information infrastructure operators are responsible for setting up a security management department, and their main responsible persons are responsible for security protection of their critical information infrastructure. Such operators should establish and implement important data and personal information security protection systems, and conduct disaster recovery backups of important networks and databases in critical information infrastructure.
Cybersecurity protection collaboration. Critical information infrastructure operators and network operators of the third class or above should carry out emergency response drills on a regular basis. In the event of a major cybersecurity incident, the competent industrial regulator should demand rectification.