On 22nd March 2011, the CIRC released a draft of the new Rules on Administration of Representative Offices of Foreign Insurance Related Institutions(“New Draft Rule”). This New Draft Rule shall replace the Rules on Administration of Representative Offices of Foreign Insurance Institutions (Baojianhuiling [2006]No.6) published on 1st September 2006 (“Rule of Baojianfa [2006] No.6”) and the Interpretations of the CIRC on Rules on Administration of Representative Offices of Foreign Insurance Institutions (Baojianfa [2008]No.101) published on 25th November 2008. Foreign insurance institutions should pay attention to this New Draft Rule because it significantly raised the threshold for foreign insurance institutions entering into Chinese insurance market.
To Whom does the New Draft Rule Apply to?
According to Article 2, the New Draft Rule shall apply to insurance group companies, insurance companies, insurance intermediaries, insurance associations and other insurance institutions which are registered outside China (including Hong Kong, Macau and Taiwan). Foreign insurance intermediaries in the aforesaid Article 2 means insurance brokerage institutions, insurance agency institutions and insurance surveyors and adjustors institutions registered outside China. Other insurance institutions are defined as nonprofit institutions registered outside China which focuses on insurance academic research, training and cooperation.
Compared with Baojianfa [2006] No.6, insurance group company is added to the New Draft Rule and reinsurance organisation has been deleted from Draft Rule. That means reinsurance companies will not need to comply with the higher standards set out in the New Draft Rule.
Requirements for foreign insurance institutions to establish a representative office in China
In accordance with Article 5 of the New Draft Rule, Foreign insurance institutions applying to establish a representative office (“Applicant”) in China shall satisfy the following requirements:
(1) Has been established for over 20 years;
(2) The home country or area of the Applicant has a stable economic and political environment and has a comprehensive financial supervision system;
(3) No record of being severely punished in the 3 years prior to the application date;
(4) Has a clear and reasonable feasible scheme to establish representative office in China;
(5) The proposed Chief Representative shall be qualified according to this New Draft Rule;
(6) Other prudential requirements stipulated by the CIRC.
Besides the requirements set out in Article 5, foreign insurance group companies and foreign insurance companies applying to establish a representative office shall also satisfy the following requirements:
(1) The Applicant has been operating an insurance business continuously for over 20 years; absorbing other companies or establishing a new insurance company by merging with other companies will not be taken into account in the calculation of Applicant’s insurance business operation period;
(2) The total capital of Applicant was over 2 billion US dollar in the last year prior to the application date;
(3) Applicant and its affiliated companies shall have a complete governance and risk control system, and shall operate in a lawful manner and with stable development. (Article 6 of the New Draft Rule)
For insurance group company, the business operation period shall be calculated from the earlier of the 2 followings:
(1) from the time the group company began to operate an insurance business;
(2) from the time a subsidiary of the insurance group company began to operate an insurance business. (Article 7 of the New Draft Rule)
Besides the requirements set out in Article 5, foreign insurance intermediary institutions applying to establish a representative office in China shall also satisfy the following requirements:
(1) The Applicant has been operating an insurance intermediary business continuously for over 20 years; absorbing other companies or establishing a new insurance intermediary institution by merging with other companies shall not be taken into account in the calculation of the Applicant’s insurance intermediary business operation period;
(2) The total capital of the Applicant was over USD200 million in the year prior to the application date;
(3) Applicant and its affiliated companies have a comprehensive governance and risk control system, and operate in a lawful manner with steady growth. (Article 8 of the New Draft Rule)
Requirements on the proposed Chief Representative of Insurance Institutions’ Representative Office
(1) graduated with a bachelor degree or above;
(2) have at least 8 years of experience in insurance;
(3) have at least 2 years of managerial experience or other proof that it has the necessary knowledge, capability and experience for the proposed duties;
(4) has no record of being been severely punished in the 3 years prior to the application date;
(5) Other requirements stipulated by the CIRC. (Article 14 of the New Draft Rule)
What documents shall be submitted by Applicant to CIRC?
The applicant shall submit two copies of the following documents to CIRC:
(1) Formal application forms;
(2) A letter of application addressed to the Chairman of CIRC and signed by the Chairman of the Board of Directors, General Manager or person in charge of the concerned Applicant;
(3) A photocopy of the business license, lawful business operation certificate or the registry certificate issued by the relevant regulatory authorities of the Applicant’s home country or area;
(4) Applicant’s articles of association;
(5) (5) a list of the members of the Board of Directors, management personnel or principal partner;
(6) Annual reports of the last 3 years prior to the application;
(7) If there is a supervising authority in Applicant’s home country or area, Applicant shall submit a letter of opinion issued by this authority regarding to the Applicant setting up a representative office in China; if there is no authority in the Applicant’s home country or area, Applicant shall submit a letter of recommendation from the industrial association of which the applicant is a member, and both types of letters shall contain information as to whether the Applicant received any penalty within 3 years prior to the application;
(8) A feasible scheme to establish representative offices in China;
(9) Identification, educational qualifications and resume of the proposed Chief Representative;
(10)A power of attorney signed by the Chairman of the Board, General Manager or person in charge of the Applicant for the chief representative proposed;
(11)A declaration made by the Applicant which provides that the proposed Chief Representative did not receive any severely punishment 3 years prior to the application;
(12)Other documents and materials required by CIRC. (Article 9 of the New Draft Rule)
Basically the requirements on submission of documents resemble with the rule of Baojianfa [2006] No. 6, the differences between the 2 are:
(1) Besides of Chairman of the Board of Directors, General Manager, the person in charge of the Applicant can also issue the letter of application to the Chairman of CIRC and sign the power of attorney for the chief representative proposed.
(2) In the rule of Baojianfa [2006] No. 6, both a letter of opinion issued by the supervision authority of Applicant’s home country or area, or a letter of recommendation from the industrial association of which the applicant is a member are acceptable by CIRC. In this New Draft Rule, a letter of opinion issued by the authority of Applicant’s home country or area should be submitted first. Only if there is no such authority in the Applicant’s home country or area, a letter of recommendation from the industrial association of which the applicant is a member is acceptable.
(3) The Applicant does not need to submit the necessity and feasibility report of establishing a representative office, but has to provide a feasible scheme.
(4) Besides of resume of the proposed Chief Representative, Applicant shall also submit the identification and educational qualifications of the proposed Chief Representative.
Although this New Draft Rule is just a draft, foreign insurance companies would note the signal from the CIRC that is: CIRC wants to raise the thresholds of entering into Chinese insurance market. This is understandable because the near-collapse of the global financial system in the fall of 2008 and the credit crisis that followed gave rise to widespread calls for changes in the regulatory system. Foreign insurance companies shall seize the opportunities before the New Draft Rule come into force or shall carry out an internal review before coming to China.