Questions and Answers about Measures on Equity of Insurance Company
On 4th May 2010, a new regulation was in the spotlight, which was seen as the most important regulation published this year. After three rounds of public discussions, the official Measures on Equity of Insurance Company (hereinafter referred to as the “New Measures”) was promulgated and will take effect on 10th June 2010. It will replace the Interim regulation on investing in insurance company (Baojianfa [2000] No. 49) published on 1st April 2000 and the Notice of Regulating Domestic Insurance Company on Attracting Foreign Investment (Baojianfa [2001] No. 126) published on 19th June 2001. This article aims at picking up some representative questions and presenting answers based on our understanding.
Continue Reading...Grandall Legal Group: Best Insurance Law Firm of the Year
The first Chambers Asia Award: China held at the China World Hotel, Beijing on 6th May 2010. Grandall Legal Group was nominated for three awards – “Capital Markets Law Firm of the Year”, “Competition/Antitrust Law Firm of the Year” and “Insurance Law Firm of the Year”, and was finally honored with “Insurance Law Firm of the Year”.
The UK-based Chambers and Partners publishes a series of guides to the legal profession and is recognized as one of the most prestigious organizations in the analysis of the international legal market. In assessing the reputations and expertise of business lawyers across China, Chambers conducts extensive interviews with clients. The Chambers Asia Award: China honored the work of law firms in China. All 16 awards recognized a law firm's pre-eminence in key practice areas. They also reflect notable achievements over the past 12 months including outstanding work, impressive strategic growth and excellence in client service. This is the first time that Chambers and Partners gave awards for Chinese market, so it drew great attention of all Chinese lawyers.
“A key player within this field, this firm works with major Chinese insurance companies. It has specialist expertise within all areas of insurance, and retains an impeccable reputation for its high-quality work.”
– Chambers and Partners Asia Award: China
Protection on Creditors of Subordinate Debts of Insurance Companies
Subordinate debt is an agreed unsecured debt between raiser and creditor(s) who has lower priority than other creditors, yet has higher priority over the raiser’s equity capitals.
Subordinate debt fund can be counted as Tier-II capitals in measuring an insurance company’s solvency status. Thus raising subordinate debt fund has become an important means of replenishing capitals by insurance companies. It is governed by CIRC’s Interim Measures on Management of Subordinate Term Debt of Insurance Company.
Subordinate debt has inherent risk. Creditors of insurance company’s subordinate debt can seek protection by virtue of the following methods:
Continue Reading...An Analysis of the Impacts on Foreign Investments by New Measures on Insurance Group Companies
As Chinese financial integration progress intensifies, increasing number of Chinese insurance companies are not content with limiting themselves to insurance business only. Rather, they have started to diversify their range of operations. By the end of 31 March 2010,
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Regulation on the Basic Service of the Personal Insurance Business Published
In February, CIRC released the Regulation on the Basic Service of the Personal Insurance Business (“the Regulation”).
Background
The insurance industry, especially personal insurance business is experiencing a rapid and healthy development in the recent years. However, the phenomenon that the insurance companies give much weigh on the underwriting rather than the indemnity, has become more and more severe. This phenomenon has impeded the further development of the industry. In order to solve such problem, some local bureau of CIRC drafted related regulations, which have received positive effects, but the differences among the regions also incur problems for insurance companies to establish uniform internal regulations. The promulgation of the Regulation is CIRC’s response to such problems.
Continue Reading...Investment in Stock Market by Insurance Funds （2）
Procedures for Stock Market Investment by Insurance Funds
For the qualified insurance companies and insurance asset management companies proposing to undertake equity investment in the public market, the following 2 steps shall be carried out initially: (1) entrusting the insurance funds in custody of a bank; (2) obtaining seats in the exchange market.
Continue Reading...CIRC Published Revised Administrative Measures for Insurance Clauses and Premium of Property Insurance Company
Recently, CIRC revised the old Administrative Measures for Insurance Clauses and Premium of Property Insurance Company 2005 and published a new one (“New Administrative Measures”). The new one will be effected since 1st April of this year.
The New Administrative Measures were revised to be in line with the new Insurance Law which was published and effected last year and were mainly revised from three aspects: (1) completing filing system of insurance clauses and premium; (2) enhancing the management of compliance chief officer and actuary chief officer; (3) strengthening supervision of insurance companies in line with new Insurance Law. Specifically speaking, the New Administrative Measures put focus on the following points.
Continue Reading...Brief Summary of Circumstances of Terminating an Insurance Contract by Insurance Companies
Where the law stipulates or conditions that the parties to a contract agree on are met, an insurance contract may be rescinded if the parties to the contract reach a consensus through consultation or either a party to the contract executes the termination right to cancel the insurance contract. Usually, without consent of insurance companies, the insured may cancel the insurance policy unilaterally at any time. That because the insureds buy an insurance product is to protect them from unknown risks, so they have right to choose how and when to protect themselves. The Insurance Law (2009) stipulates that otherwise stipulated by other laws and regulations, or agreed by both parties in insurance contract, after the formation of insurance contract, the insurance contract may be rescinded by the insured. On the contrary, to protect the interest of insureds, the Insurance law (2009) generally prohibits the insurer to terminate the contract casually. Only under some special circumstances, the insurer may be allowed to cancel the insurance contract. Here we simply give a brief summary of those circumstances.
Continue Reading...Investment in Stock Market by Insurance Funds (1)
According to the Administration of Stock Investments by Insurance Institutional Investors Tentative Procedure (hereinafter referred to as “Tentative Procedure”),as the “insurance institutional investors”, qualified insurance companies and insurance asset management companies are entitled to invest in stocks. Insurance companies include the insurance group companies and the insurance holding company. The difference of qualification requirements for insurance companies and insurance asset management companies[1] is, if the insurance asset management companies satisfy article 5 of the Tentative Procedure, they can invest in stocks directly without CIRC’s approval and if the insurance companies satisfy article 7 of the Tentative Procedure and get approval from CIRC, they can invest in stocks directly as well.
Continue Reading...The Issuing of Subordinated Debt of Insurance Companies in China
As we all know, capital is crucial for insurance company. Only with enough funds can an insurance company have ability to cover the exposures. With adequate capital, an insurance company may better develop the business, i.e. release more ads, or establish more branches, to make more profits. It is possible that during the operation, an insurance company has no sufficient capital to support its business, and under such circumstance, the insurance company will need to raise funds to replenish its capital.
Generally speaking, there are four ways for an insurance company to supplement its capital:1. IPO or Seasoned Equity Offering; 2. getting additional investment by current shareholders; 3.getting money from private offer; and 4. allotting subordinated debt. For Chinese insurance companies, the first three ways may encounter hurdles or difficulties in practice. First of all, IPO is not easy for insurance companies, because many of them, especially small and medium-sized insurance companies, may not be able to meet the high standard of IPO. Secondly, current shareholders may be more willing to use financial vehicle, rather than funds of their own, to run the insurance company. It might be very difficult to raise money from current shareholders. Lastly, due to the financial crises, many institutions have insufficient funds to make the investment. Then issuing subordinated debt becomes a practical option for many insurance companies. According to the CIRC, 10 insurance companies were approved in 2009 to issue subordinated debt. The total amount of debt reaches RMB 18 billion.
Continue Reading...Corporate Governance Structure of Insurance Companies
The shareholders’ qualification and the appointment qualification of directors, supervisors and senior management personnel of an insurance company shall, in accordance with the Provision on the Qualifications of Directors, Supervisors and Senior Managers of Insurance Companies newly revised by CIRC on January 8th, 2010 and Administration of Insurance Companies Regulation newly revised by CIRC on September 25th, 2009 and other regulations, be submitted to CIRC for examination and approval thereof. If they fail to perform their duties or there are significant negligence of duty, CIRC may order the insurance company to replace such personnel or cancel their appointment qualifications.
Continue Reading...2010 Shall Be An IPO Starting Year For Insurance Companies
During Christmas holiday of 2009, China Pacific Insurance (Group) Co., Ltd was listed in the Stock Exchange of Hong Kong Limited, with the stock code”02601” and the stock name of “CPIC”. It became the forth insurance companies which were listed in foreign Stock Exchange in China. The other three are PICC, China Life and Ping An Insurance. The IPO of CPIC gives more hopes for insurance companies to IPO in 2010. PICC just finished the reform to establish a joint stock system for enterprises and its CEO Wu Yan said in public that PICC will choose appropriate time to be listed in A share in future. Besides, China Reinsurance (Group) Corporation, Tian Ping Insurance Company, New China Life Insurance Company all show their ambitious to IPO. For many insurance companies, 2010 will be a starting year for them to IPO.
Continue Reading...CIRC Published New Measures for Administrative Reconsideration of CIRC
Considering new problems generated in recent years, CIRC revised current Measures for Administrative Reconsideration of CIRC (hereinafter as “Old Measures”), and published the new one (hereinafter as “New Measures”). The New Measures has changed some significant aspects of procedures of administrative reconsideration and it will be effected from 1st of March.
Continue Reading...Revised Provision On The Qualifications Of Directors, Supervisors And Senior Managers Of Insurance Companies Published
The new revised Provision on the Qualifications of Directors, Supervisors and Senior Managers of Insurance Companies was published by CIRC and it will be effected on 1st of April. It could be seen as a storm of supervision blowing from CIRC at the beginning of the year. This provision adjusts the scope and manners of CIRC’s qualification management system, strengthens the qualification of directors, supervisors and senior managers, and improves the long lasting supervision regulation.
Continue Reading...The First Chinese Seller/Buyer Warranty And Indemnity Insurance Policy Is Underway
The Seller/Buyer Warranty and Indemnity Insurance is a new type of insurance in the global insurance market. The Purpose of this insurance is to against the risks involved in the M&A process, especially those risks generated by the misrepresentation of the parties. The insured target of the Seller/Buyer Warranty and Indemnity Insurance is the representation and warranty provision in the M&A contract.
Continue Reading...Legal Case Study：Sufficient Explanation Obligation on Exemption Clauses for Insurance Companies
Exemption clauses are restrictions on the insurer’s insurance liability, and define the scope within which an insurer bears no liability to compensate or pay the insurance proceeds. Article 19 of new Insurance Law provides that the insurer shall, when concluding an insurance contract, provide on the application form, insurance policy document or other insurance certificate a reminder sufficient to draw the attention of the proposer to the exemption clauses in the insurance contract and shall expressly explain the contents of such clauses to the proposer in writing or orally. If no such reminder or express explanation is given, such clauses shall not enter into effect. The old Insurance Law provided a similar provision on this issue, but less practicable. This provision, in practical, has become an ultimate weapon to insurance companies. As of the occurrence of accident which is included in exemption clauses, lots insureds use this provision to claim their rights. They claim that the insurance company did not give them sufficient notice to draw their attention to the exemption clauses. The court, in practical, also adopts strict interpretation on these clauses to insurance companies.
Establishing Representative Office of Insurance Company in China (2)
Governmental supervision of financial industry is very strict in China. For CIRC’s examination of the foreign investors who want to establish representative office in its jurisdiction, the following documents shall be presented in front of CIRC:
Will It Be A Death Sentence For Small Insurance Intermediaries?
The new Notification issued by CIRC may sentence the death of lots of small and medium- size insurance intermediaries.
On the last day of 2009, CIRC promulgated the Notification on Implementing the Supervision Regulation on Corporate Insurance Agency, the Supervision Regulation on Insurance Brokerage and the Supervision Regulation on Insurance Adjustment Institution (hereinafter referred to as three supervision regulations). According to this notification, the capital of all insurance intermediaries must reach the threshold provided on the three supervision regulations before October 1st, 2012.
Continue Reading...Establishing Representative Office of Insurance Company in China (1)
As to a foreign insurance company, if it wants to invest in Chinese insurance market or run business pertaining to insurance within China, it can (1) cooperate with a Chinese insurance company by executing strategic cooperation agreement, under which both parties agree to do extensive cooperation in the field of underwriting reinsurance, developing new insurance products, exclusively choosing the other as the potential partner, providing training and technique assistance to the Chinese insurance company;(2) establish a consultant company in China, through which the foreign insurance company can provide some counseling;(3) establish a foreign founded insurance company ( the foreigner’s shares shall exceed 25%) or purchase the equity of a Chinese insurance company ( the foreigner’s shares shall exceed 25%) or establish a branch of the foreign insurance company in China.
Continue Reading...Relevant Accounting Rules on Insurance Contract Published
On December 22, 2009, the Ministry of Finance and CIRC jointly published Relevant Accounting Rules on Insurance Contract (“the Rule”). The long awaited rule finally lifted its veil at the end of this year.
Government officials from Ministry of Finance and CIRC commented on the rule. According to the officials, the rule is designed to eliminate the discrepancies existing in the accounting standards of A-share annual report and H-share annual report. All insurance companies are required to follow the rule in creating the 2009 financial report.
The rule mainly covers three components: split-up of mixed insurance contract, major risk evaluation and calculation of reserves of insurance contract.
Continue Reading...Defining 'Gross Negligence': Will Insurers Be Left Exposed?
Gross negligence is a familiar concept in insurance policies sold in the Chinese market, particularly property policies. The all-risk policy issued by the People's Insurance Company of China and the contractual liability insurance provided by newcomers to the industry, including the policies offered by foreign insurers, exclude accidents resulting from the insured's gross negligence. Although this position seems clear in principle, it can be harder to determine in practice, as the fire at China Central Television (CCTV) has demonstrated.
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Analyzing Insurable Interest and Subrogation
In many high-value insurance cases, two key issues to consider are (i) whether the applicant or policyholder has an insurable interest in the object of the contract, and (ii) how the insurer applies its subrogation rights after compensation is paid to the insured party.
Continue Reading...Insurance Companies Await Regulator's Rules on Private Equity
Industry experts expect the China Insurance Regulatory Commission to announce the Detailed Rules for Investment in Unlisted Companies' Equity by Insurance Companies and the Detailed Rules for Investment in Real Estate by Insurance Companies in October 2009. It has already published five sets of rules concerning insurance funds' investment channels and their investment in infrastructure projects, which were issued on April 7 2009.
Continue Reading...Accesses for Foreign Insurance Company's Equity Investment in Chinese Insurance Company
With the rapid development of Chinese insurance market and the trend of the financial deregulation, more and more foreign financial institutions want to invest in Chinese insurance companies. How to invest in a Chinese insurance company are concerns of many of my foreign clients. As you know, there are two basic accesses for foreign financial institutions to invest in Chinese insurance company, one is to establish a “foreign funded” insurance company with its Chinese partners in China, the other is to purchase a Chinese insurance company’s equities. This article focuses on the second one.
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Can Foreign Insurance Company Sell Policy to Chinese Residents Overseas
These days, more and more Chinese people prefer buying policy issued by foreign insurance companies. Compared to the current under-developed situation of Chinese insurance industry, many Chinese Insured think that foreign insurance companies may offer services that more mature and cover more aspects. Driven by the high profit Chinese insurance market may generate, many foreign insurance companies tries to market their insurance products in China. However, there are real barriers and potential legal risks to foreign insurance companies when they are engaging in marketing their products in China.
Continue Reading...Regulations of Corporate Governance Structure of Insurance Companies
The regulation of corporate governance structures is the latest and most important development to the international regulation. For the purpose to strengthen the insurance industry in China and in the light of international experience, China Insurance Regulatory Commission (CIRC) promulgated the Guiding Opinion on Regulating the Insurance Company Corporate Governance Structure ( Trial Implementation) (Guiding Opinion on 5 January 2006. This Guiding Opinion is applicable to shareholding insurance companies. Other insurance companies and insurance asset management companies may also refer to this Guiding Opinion for implementation. The main contents of this Guiding Opinion are as follows: 1),strengthen majority shareholder obligations; 2), strengthen Board of Directors construction functions; 3),ensure Supervisory Board Function;4) regulate management level operation; 5),strengthen affiliated transaction and information disclosure management; and 6) corporate governance structure supervision and administration.
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The Appointment Qualification for the Senior Management Personnel in Insurance Institutions
Often within my usual work I have to review some Partnership Agreements and Cooperation Agreements between my Chinese clients and their foreign investors. A reoccurring problem that worries my clients and their foreign investors, which results in me having to explain the Chinese regulations, is that in their Partnership Agreement the foreign investors want to send their personnel to assume positions at the Chinese Insurance Company they have invested in. In my personnel opinion, it is not an extreme request for them to administrate or manage the insurance institution to some extent. This said, it still has to be made clear that there are some limitations and qualification requirements, imposed by (CIRC), for the personnel to hold certain positions in Insurance Institutions. In relation to this problem, there are some provisions promulgated by CIRC for reference, such as the Administration of Appointment Qualification for Directors and Senior Management Personnel of Insurance Companies Provisions, the Administration of Appointment Qualification for Senior Management Personnel of Insurance Companies Provisions, and some Amendment Decisions.
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CIRC's New Opinion Speed Up the Medical System Reform
Recently, for the purpose of coordinating with the Medical System Reform in China, China Insurance Regulatory Commission (CIRC) issued the Opinions on Implementing the Medical Reform and Actively Engaging in Establishment of the Multilayer Medical Guarantee System (hereinafter referred to as Opinions) on June 11, 2009. For the first time this has stipulated eight requirements for the commercial insurance institutions that are engaged in various medical guarantees administrative services.
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Consumption Credit Insurance: now in Beijing
The new insurance product: consumption credit insurance for individuals will be issued first time in Beijing.
Based on individual credit, clients will be granted small amount of loan from banks in 3 to 4 days without any guarantors and mortgages. Ping An Insurance Limited has received the permission to issue this consumption credit insurance in over 20 areas, such as Beijing, Tianjin and Zhejiang Province.
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A Domestic Insurer, a Chinese Manufacture, a Foreign Element?
With foreign investors testing ingenious ways in which to circumvent the regulatory burdens and scrutiny associated with a foreign owned Chinese insurance company, an interesting question has come to light; is it possible for an insurance policy between a domestic insurer and a Chinese manufacture to have a foreign element. The foundation of this question is rooted in the uncertainty surrounding the enforcement and validity of an arbitration clause designating a foreign jurisdiction for a case which is purely domestic (China).
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Development on Liability Insurance of Travel Agencies
Travel agencies legitimately established in mainland should buy compulsory travel agency liability insurance. This is one article in draft of the Administrative Measures for Liability Insurance of Travel Agencies (Draft for Comment) promulgated by National Tourism Administration of PRC and China Insurance Regulatory Commission for public comments.
According to the draft regulation, the compulsory travel agency liability insurance should cover the compensation liability incurred by the travel agency during the trip because of the death and injury of the clients and their property damages. It should also cover travel agency’s liability to the people they employed when they are injured or their property is damaged. The insurance should cover liability caused by travel agency’s negligence or fault; by accidents and based on what the People’s Court or arbitration institution held on the judgment.
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Foreign-invested Insurance Companies in China
According to relevant provisions under Chinese Law, a “foreign-invested insurance company” may take the following forms;
1) A joint venture insurance company in China established by a foreign insurance company and a Chinese company or enterprise;
2) A foreign insurance company solely owned and operated by a foreign insurance company;
3) A branch company of a foreign insurance company in China.
Procedures for the Establishment of Foreign Insurance Companies' Representative Offices in China
A representative office in China of a foreign insurance company is in fact not a true commercial presence in China because a representative office and its employees are only allowed to conduct non-business activities in Chinese insurance market such as liaison, market research and are prevented from conducting or engaging in any business activities and providing insurance services. On the other hand, if an insurance company has a commercial presence in China, this means it can provide insurance services in China. But establishing a commercial presence such as foreign invested insurance company by a foreign insurance in China shall be subject to have a representative office in China for over two years. Therefore, setting up a representative office in China is the first step for a foreign insurance company who want to establish a commercial presence in China.
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Major Hurdles Of Foreign Owned Insurance Businesses in China
The insurance market in China is growing at an unprecedented rate. Cultural norms towards insurance have begun to change regardless of the intangible nature of insurance and a substantial portion of this growth has arrived through foreign investment. Foreign investors continue to increase their share of the Chinese market regardless of the current economic downturn. Compared with other financial sectors, the insurance market is the most accessible in China, however, such investors will ultimately face fresh challenges from the banking sector due to the present state of credit markets and the regulatory environment surrounding Chinese insurance businesses is uninviting. In order for potential investors to gauge prospective returns, one must hold an understanding of the hurdles associated with such forms of investment on the Mainland of China. The following will attempt to outline some of the major hurdles faced by current and prospective investors in China’s insurance market. By no means is this account to be exhaustive, rather its purpose is to provide general insight and awareness. Given the importance of due-diligence, considering the past errs within the market, current and prospective investors must be aware of the current regulatory environment.
Continue Reading...The CIRC and Its Local Offices: Functions and Responsibilities
Last week, I received an email from an American attorney, whose client encountered some problems concerning their insurance policy, a policy purchased from two Chinese Insurance Companies. In his email, he informed me that after the occurrence of an accident which was suppose to be covered in the insurance policy, the Chinese Insurance Companies refused to compensate his client. The insurer and the insured had different understandings of the policy clause. He wanted to know whether his client could seek help from the CIRC and if so, how they should go about doing so in China. In his email, some provisions in the Guideline of the Management of the Insurance Company issued by CIRC were quoted to inform me the CIRC functioned similar to the SEC in the US. I informed him the CIRC could not help, his client should bring this case to court or if there is an arbitration clause in the policy, the dispute could be arbitrated in the arbitration commission agreed by the parties.
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Institutional defects of China divided operation
1. The dilemma in the contractual cooperation between banks and insurance companies
Generally speaking, the mode of mixed operation is still under exploration and the driving force mainly originates from the spontaneous market.
The cooperation between banks and the insurance sector remains on the level of contractual agreement between insurance companies and banks. Such cooperation only involves certain activities in which banks conduct the following for insurance companies; charging insurance premiums, disbursing insurance amounts and selling insurance products.
Chinese Banks Attempt to Invest in the Insurance Industry
Recently, in the Fifth High-Level Forum of China's Financial Reform, supervisory and regulatory officials from departments such as the CIRC, CSRC, CBRC, People's Bank of China and Ministry of Finance, indicated the CIRC and CBRC have reached consensus on a pilot investment project. The project will concern investment in the insurance industry by 4 large banks allowing for some breakthrough in the Mixed Management of Banking Industry in China.
Continue Reading...Expanding Investment Channels for Chinese Insurance Funds
According to the Administration of Stock Investments by Insurance Institutional Investors Tentative Procedures issued by the CIRC on December 24th 2004, institutional insurance investors may engage in or entrust a qualified institution to engage in the trading of stocks, convertible corporate bonds and a range of other securities.
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China CIRC Strengthens the Board of Directors System of Insurance Companies
Last year, China Insurance Regulatory Commission (CIRC) promulgated the Guidelines on the Operation of the Board of Directors of Insurance Companies (hereafter refers to the Guidelines) whose provisions are, comparing with the Guiding Opinion on Regulating the Corporate Governance of Insurance Companies promulgated in 2006, more specific in many aspects such as the qualification of directors, the operation of directors board and its professional committee, secretary and assistant institutions of the directors board, corporate governance report, etc. The Guidelines, together with the Interim Measures for the regulation of Insurance Companies' Independent Directors and the Interim Measures for the regulation of Affiliate Transaction of Insurance Companies, composes the primary system of the board of directors of insurance companies.
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A Brief Introduction to the Settlement of Marine Insurance Disputes in China
The settlement of Marine insurance disputes in China is unique and different from that in other countries in respect of jurisdiction, application of law and the mode of resolution.
The Application of Law in Marine Insurance Disputes
In respect of the application of substantive law. Marine insurance disputes mainly refer to The Insurance Law of the PRC and The Maritime Code of the PRC. The first is a general law and the second is a special law within the Chinese legal system. In other words, The Maritime Code of the PRC shall prevail if both laws are applied. The Contract Law of the PRC and The General Principles of Civil Law of the PRC may also be applied if neither the Insurance or Maritime law can be applied. The Maritime Code of the PRC and The Insurance Law of the PRC came into effect in 1993 and 1995 respectively. Both laws were created by reference to the relevant laws and legislation of foreign countries. In particular the relevant marine and insurance provisions of Britain, the USA and Germany, played a dominant role.
Marine Insurance in China----a very brief glance
Marine insurance also referred to as waterborne insurance is an agreement where one party undertakes the payment of premium and the other undertakes to indemnify the assured to the extent of all losses, damages and costs that arise from maritime peril and contingency; unless specified otherwise in the agreement. Marine insurance has become one of the most important forms of insurance and is one of the oldest forms of insurance policy which continues to develop from its original form. The long history, and its specialty focus make Marine insurance a relatively independent insurance system.
Continue Reading...The Conundrums of Foreign Investment in Chinese Insurance Companies
Due to its dramatically quick development and tremendous prospects, the Chinese insurance market has attracted a huge flow of foreign investment, most of which focuses within insurance companies.
According to the Chinese commitment to WTO, the insurance industry is the first financial field to be opened to foreign investment. At the present time, as far as the establishment of a foreign-funded insurance company is concerned, some foreign investors are still puzzled by conundrums.
In the regulation of administration of foreign-funded insurance company, Article 8 stipulates the establishment requirements: "A foreign insurance company that applies for establishing a foreign-funded insurance company shall meet the following conditions:
The Incontestability Clause in China and the Draft Insurance Law of the PRC
During the course of the draft of Insurance Law of PRC, the presence of an "Incontestability" clause has come under fierce debate.Last night, I received a call from a CIRC (China Insurance Regulatory Committee) official, who asked my opinion on the highly debated clause.
Continue Reading...Potential Development for the Directors and Officers' Liability Insurance in China
Today D&O is a promising insurance product in China. My views are based on the newly revised Chinese Company Law and Securities Law of 2005. Section 3 of Article 113 of the 2005 Company Law stipulates "Directors shall be responsible for resolutions passed by the board of directors. If a resolution of the board violates the law, administrative regulations or the articles of association of the company and thus causes serious losses to the company, the directors who participated in the adoption of such a resolution shall be liable for compensation to the company. However, if a director is proved to have expressed his objection to such a resolution when it was put to the vote and his objection was recorded in the minutes of the meeting, he may be exempted from such liability".
Continue Reading...Chinese Directors and Officers' Liability Insurance in Dilemma in the Past
Directors and Officers' Liability Insurance (D&O) is popular throughout Europe and North America and has been used for the sole benefit of directors and officers. Overall the foundation of the popularity is quite diverse. In my opinion, the most important is that such insurance will assist a company in attracting and retaining qualified directors and officers.
Chinese Environmental Impairment Liability Insurance at a Slow Pace
Environmental Impairment Liability Insurance (EIL insurance) is a new insurance product in China. Earlier in the history of the coverage, the insured facing an EIL loss often sought indemnification through their Commercial General Liability (CGL) policy. With the increase in EIL claims, both in frequency and severity, CGL writers, never intending the scope of their coverage to extend to EIL, quickly addressed the coverage question by excluding EIL from their CGL policies.
Continue Reading...The New PRC Insurance Law - Improvement and Limitation
At the end of February 2009, the legislative institution in Beijing promulgated the revised insurance law of People’s Republic of China. This new insurance law will be enforced in October 2009.
When the first insurance law was promulgated in 1995, the Chinese insurance market was largely monopolized, controlled by one state-owned insurer. In regard to public opinion, most Chinese considered insurance as something novel. Today, although far from mature, the Chinese insurance market is too large to neglect. For example, the market is composed of 100 insurance companies and over 2000 intermediate insurance companies, including domestic companies, subsidiaries of foreign companies and joint ventures.
Continue Reading...Health Insurance and Health Care in China
The development and history of health insurance in China, it is not a simple story.For many years, the Chinese medical service has been controlled by state-owned hospitals; private hospitals and pharmacies could not compete with the public medical system. As a result, the majority of citizens received their medical service through the public system and the need for health insurance products was extremely limited. Even many years after the promulgation of the Chinese Insurance Law, China lacked formal health insurance products.
After 2000, health insurance became popularized in the Chinese insurance market. The popularity was due to the reform of the medical system; which required the majority of city residents and those in the countryside to afford medical costs by themselves. Hence a demand and need for health insurance arrived in short time.
Insurance Funds in China Expand toward Equity Investments
Recently it was reported in the financial news that the China Insurance Regulatory Commission of the State Council (CIRC) had allocated RMB200 billion to carry out a pilot investment program for funds held by insurance companies. The RMB200 billion has been equally invested across infrastructure projects and other equity investments.
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Are Extended Warranties/Extended Service Contract Considered Insurance?
Within China’s emerging legal system the question of whether an extended warranty (extended service contract ) will be subject to increased regulation under the Insurance law of China remains unanswered.
For those who are interested in undertaking a venture of this nature within the Chinese market the answer is of fundamental importance. From an entrepreneurial stance, treating the contract as a non-insurance contract will optimize business efficacy, allowing potential investors ease of market access. It would not appear practical to subject such contracts to the rigors of insurance law. On the contrary, Consumer advocates often propose and lobby for such contractual agreements to be subject to the extensive regulation surrounding insurance contracts in order to protect consumer welfare. The basis of these arguments is premised upon an extended warranty being in the interest of the contracting company and not the consumer. Such groups often argue extended warranties (extended service contract) are simply an additional mean in which to profit from an existing product.
Aviation Passenger Accident Insurance in China: History, Change and Administration. A Continuing Quest for Perfection
Aviation Passenger Accident Insurance (APAI) in China originated in the Interim Provisions on the Compensation for the Personal Injury of Domestic Aviation Transport Passengers in 1998. In reviewing the supervision and management of APAI by the China Insurance Regulatory Commission (CIRC), we may divide the history into three stages.
During the first stage (1998-2002), APAI applied uniform provisions issued by the People’s Bank of China. At this time the CIRC was required to focus on organizing spot inspections and the strengthening of punishments concerning the violation of laws and regulations effecting control and regulation of APAI market order. The focus was a product of troubling issues, such as: the compulsive sale of APAI with tickets or other relevant insurance; counterfeit policies; and the embezzlement of premiums by agents or staff of insurance companies.
CIRC Compliance Guidelines: Implementation for Chinese Insurance Companies
In the Chinese insurance market, it is common practice for a company to try to strengthen its supervision capabilities. In the past, special emphasis has been placed on supervision within departments – however, this is often inefficient. Therefore, financial regulatory institutions are beginning to focus on preventing risk by promoting internal supervisory mechanisms and the principle of compliance management.
Since Ping An Insurance Group initiated the establishment of the “Law & Compliance Department” in 2004 and theChina Insurance Regulatory Commission (CIRC) issued the Guidelines of Standardizing Governance Structure of Insurance Companies in January 2006 which state that insurance companies are required to establish a mechanism of compliance management to strengthen the inspection and evaluation of compliance, other domestic insurance companies have followed suit. In 2007, CIRC issued the formal Guidelines for the Compliance Management of Insurance Companies (hereafter Compliance Guidelines) which provide direct policy guidelines for the establishment of departments of compliance.
Just Move, A Big Step-comments on the draft of new insurance law of China
The Chinese legislator recently published the draft of the Chinese Insurance Law (revised). The draft is inherently different from the present Insurance Law of the People's Republic of China. Therefore, the draft should be deemed as new rather than revised.
The current Insurance Law has aroused fierce and serious criticism since its promulgation in 1995 and subsequent revision in 2002. Those who are insured, insurers, brokers, agents, loss adjusters and regulators are not satisfied with the current regulatory position surrounding the Insurance Law. The reasons which stem from this dissatisfaction are multiple.
Who "Directs" the Directors of Chinese Insurance Companies
On July 8th 2008, the China Insurance Regulatory Commission (CIRC) promulgated the Guidelines on the Operation of the Board of Directors of Insurance Companies (the Guidelines) whose provisions are, compared with the Guiding Opinion on Regulating the Corporate Governance of Insurance Companies promulgated in 2006, more specific in many aspects such as in the qualification of directors, the operation of directors board and its professional committee, secretary and assistant institutions of the directors board and corporate governance reports. The Guidelines, together with the Interim Measures for the regulation of Insurance Companies' Independent Directors and the Interim Measures for the regulation of Affiliate Transaction of Insurance Companies, compose the primary system regulating the board of directors of insurance companies.
Continue Reading...Bad Faith and China's Insurance Market: A Classic Example
The issue of “bad faith” has plagued the insurance market in China and has proven to be a major hurdle in the Chinese insurance market’s development. Below is a case which provides insight into the presence of bad faith at the local level.
In February 2009, a defendant (the insured) was sentenced to eight months imprisonment for refusing to transfer insurance proceeds to the injured party. The ruling was given by Haidian local court, Beijing, China.
In 2007, a car accident occurred in Beijing, involving the defendant and claimant, Mr. Sun. The claimant sued the defendant in a Chinese local court and the Chinese court issued a judgment in favor of claimant; ruling the defendant assumed full responsibility and should indemnify the claimant for the loss of 43,000 RMB ( approximately 6,300 USD).
The defendant received the proceeds form his insurer, resulting from the car accident, however, he refused to pay the proceeds to claimant. Furthermore, to escape enforcement of the judgment, the defendant fraudulently transferred property titles in his name, including the title to a car.
The enforcement department of the local Chinese court stated the actions of the defendant violate the Criminal Law of the People’s Republic of China. The case was then transferred to the Criminal Division in the court.
The case provides an example of the problem of “bad faith” within the Chinese insurance market. As many Chinese Insurance lawyers would agree, the issue surrounding and the problems arising from “bad faith” in the Chinese insurance market must be resolved. A suitable start would involve the Chinese courts strengthening enforcement of their judgments which would discourage immoral behavior.
Chinese Insurance Law Legislation needs Improvement for Adequate Governance
The first Insurance Law in China came into force in 1995 and was amended in 2002. There have been no other additional changes or modifications to the Insurance Law. Although the Chinese Supreme Court has drafted an Explanation to the Enforcement of the Insurance Law, these rules have yet to be utilized in practice. Thus, it is clear that the rules and regulations governing insurance in China has failed to keep pace with the rapid development in the market.
Continue Reading...The Chinese Insurance Market is Developing at a Rapid Pace
China has experienced unprecedented growth in the insurance field. The total amount of premiums reached 100,611,940,000 USD in 2007. The total amount of premiums reached 80,672,020,000 USD in 2006 ranking it eleventh out of all countries in the world. Moreover, the total financial holdings of insurance companies in 2007 amounted to 414,756,056,000 USD, one-third larger than total holdings in 2005. Presently, there are more than 100 insurance companies in China, and more than 3000 insurance intermediary companies which include businesses specializing in broker, agency, and loss adjuster services.
Continue Reading...Chinese Insurance Market has Urgent Need for Professional Lawyers
China has one of the fastest growing insurance markets in the world. The number of professional insurance lawyers cannot meet the demand in the market due to the limited history of both the legal and insurance industry within China.
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