CIRC ponders new reinsurance rules in China
New rules proposed by the China Insurance Regulatory Commission (CIRC) that would apply to the affiliated reinsurance business of foreign-invested insurance companies in China, which were released last December for public comment, would impose new more stringent requirements on insurers wishing to use affiliated reinsurers if the rules are adopted.
These would include the requirement that an affiliate must have posted a net profit for the prior three-year period. The cash flow of the affiliate must also be stable without any “abnormal fluctuation” although what is meant by this last phrase is not defined.
The new rules would also require that the underwriting profits and net profits of the insurer in question must not be significantly reduced due to the reinsurance arrangements with its affiliates, relevant reports concerning the arrangement must be posted on the entity’s official website for at least five years and the affiliate must have no record of any major violation of law in the previous three years. Previously, this period was two years.
In a briefing paper, law firm Clye & Co said the proposed rules were another attempt by the CIRC to enhance the security of reinsurance business while also looking to ensure that foreign-invested entities do not transfer underwriting profits in this way.
Carrie Yang and Amanda Li, partner and associate with law firm Clyde & Co and the authors of the paper, added that the proposed rules only exist in the form of a discussion paper at this stage and "the potential impact on foreign-invested insurance companies in China as well as their reinsurance transactions with affiliates outside China would be subject to the formal circular to be issued".
