Jurisdiction - China
Reports and Analysis
China – Insurance Regulator issues long awaited Business Portfolio Transfer Rules.

24 October, 2011

 

On 26 August 2011, China Insurance Regulatory Commission (“CIRC”) issued the longawaited business portfolio transfer rules entitled Tentative Administrative Measures on Insurance Business Transfer of Insurance Companies (“Tentative Measures”). They will come into force on 1 October 2011.
 
The Tentative Measures aim to regulate the transfer of insurance business between Chinese insurance companies and to protect the interests of the policyholders and insured.
 
Authority
 
The transfer of all or part of insurance business shall be subject to the approval of the CIRC.
 
The Tentative Measures do not define “part of insurance business”. Instead, these measures authorise the CIRC to set the standards of “part of insurance business”.
 
Qualification of the transferee
 
In accordance with the Tentative Measures, a qualified transferee of insurance business must satisfy various requirements in respect of corporate government, solvency, operational scale etc.
 
Documentation
 
The transfer of insurance business must be pre-approved by the CIRC. A full set of documents, including insurance business transfer agreement, feasibility, assessment report from professional intermediaries, assessment report on the liability reserves of the business to be transferred, analysis on the solvency of the transferee etc, must be submitted to the CIRC for the purpose of such approval.
 
Appointment of Independent Experts
 
The Tentative Measures require both parties involved in the transfer of insurance business to engage professional intermediaries such as law firms and accounting firms to assess various aspects (e.g. value of the business, compliance with relevant regulations) of the insurance business to be transferred. As indicated above, assessment reports from the professional intermediaries will constitute part of the submission to the CIRC for approval.
 
The Tentative Measures do not contain any provisions regarding the qualifications or criteria for the selection of professional intermediaries. It is therefore still unclear whether the selection of professional intermediaries will require pre-approval by the CIRC.
 
Consultation with the policyholder/insured
 
The Tentative Measures provide that, after the CIRC has approved an insurance business transfer agreement in principle, the transferor shall promptly notify the policyholders and insured in writing of matters relating to the transfer, and obtain the consent of policyholders and the insured.
 
The Tentative Measures do not go further to deal with circumstances where the policyholders and insured oppose the transfer. These measures also fail to elaborate upon how any communications with the policyholders/insured shall be dealt with if the relevant business is placed by brokers.
 
Public notice
 
The Tentative Measures require that after the CIRC has approved the transfer, both companies involved in the transfer shall jointly announce the proposed transfer in the newspapers, and also post a notice of the transfer on their respective official websites.
 
Effect of the transfer
 
The Tentative Measures do not specify the effects of the transfer, but imply that all of the business included in the transfer will be transferred to the transferee, and it will be as if the insurance contracts had been originally entered into by the transferee.
 
Other outstanding issues
 
Various outstanding issues still need clarification. For example, there are also no special provisions in the Tentative Measures relating to transfer of compulsory insurance business. It is also not clear whether the outwards reinsurances will automatically be transferred along with the underlying business, and how this will be dealt with.
 
The Tentative Measures do not allow insurance business to be transferred to any insurance companies based outside of the PRC. Transfers can only occur between companies authorised by CIRC.
 
We hope that many of the above issues could be clarified by the CIRC after the Tentative Measures become effective.
 
 
For further information about this article, please contact:
 
Carrie Yang, Partner, Clyde & Co
carrie.yang@clydeco.com.cn
 
Amanda Li, Clyde & Co
amanda.li@clydeco.com.cn
 
 
 
 

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