Shedding New Light on the Regulation of Representative Offices in China of Foreign Insurance Institutions

In comparison with the 1999 Procedures, the most obvious change found in the New Procedures is the adoption of the phrase "foreign insurance institutions" instead of the former "foreign-invested insurance institutions". According to the Administration of Foreign-funded Insurance Companies Regulations promulgated by the State Council in December 2001, the phrase "foreign-invested insurance companies" shall refer to insurance companies that are registered within the territory of China and that have been established with foreign investment. In the 1999 Procedures, however, "foreign-invested insurance institutions" refers to foreign insurance companies and other insurance organizations registered outside the territory of China. In effect, then, "foreign-invested" has contradictory meanings in the different regulations. Therefore, the former phrase "foreign-invested insurance institutions" has been replaced by "foreign insurance institutions", which is a more precise legal concept, to avoid ambiguity and confusion.

The CIRC has established a nationwide regulatory network. Therefore, in the New Procedures some of the regulatory and supervisory works over representative offices originally undertaken by the CIRC at the central level have been handed over to its regional offices for better regulation. Numerous articles in the New Procedures reflect this change.

Improvement of the Administrative Examination and Approval System

Following China's accession to the WTO, significant changes have taken place in the administrative examination and approval system in the insurance industry. These changes are also reflected in the New Procedures.

Most importantly, the administrative examination and approval system has been simplified in the New Procedures. According to Articles 6, 7 and 8 of the 1999 Procedures, when applying for the establishment of a representative office, the applicant must first submit specified application material in order to obtain an official application form. After receiving the official application form, the applicant must then submit other necessary material to apply for the establishment of the representative office. If the applicant did not receive the official application form within six months after submission of the application material, the application shall be deemed to have been rejected. According to Articles 7 and 8 of the New Procedures, however, all the application materials are submitted together with the official application form. Where the material is incomplete or inconsistent in form with the relevant laws, the applicant shall be advised in one notification regarding all the required corrections on the spot or within five days of the submission of the application, failing which the application shall be deemed accepted for review on the day the application material is received.

Secondly, the time limit for administrative examination and approval is specified in the New Procedures. This is in contrast with the 1999 Procedures, where no time limit was set for the CIRC to make decisions as to whether or not a final application was approved. According to Article 9 of the New Procedures, however, the decision as to whether or not the application is approved must be made within 30 days at the most (including a 10-day extension with the approval of the chairman of the CIRC), from the acceptance of the application. Moreover, the New Procedures also prescribe a time limit of 20 days for decisions as to whether or not an application for change of general representative, chief representative and name of a representative office or cancellation of a representative office is approved, matters on which the 1999 Procedures were silent.

Thirdly, in the New Procedures fewer issues are subject to administrative examination and approval, for instance, extension of a representative office. In addition, the change of office address of a representative office within the same city, formerly requiring administrative examination and approval, is now subject only to a report to the local CIRC regional office within five days of such change.

Enhancing Prudential Supervision

While the procedures of administrative examination and approval have been simplified, more efforts have been directed to the prudential supervision of representative offices.

According to Article 5 of the New Procedures, a foreign insurance institution that is applying to establish a representative office (the applicant) shall have an excellent record in business and corporate management without any record of grave or material illegality or irregularity in the three years prior to the application date, and it shall comply with other prudential requirements as stipulated by the CIRC. None of these provisions are mentioned in the 1999 Procedures. In addition, an opinion letter issued by the competent authority in the applicant's domiciled country or region regarding the applicant's establishment of a representative office in China, or letter of recommendation issued by the relevant industry associations, which shall refer to the applicant's record of penalties or fines for the three years prior to the date of issue of such letter, shall be submitted together with other application material when applying for the establishment of a representative office.

Article 24 of the New Procedures provides for additional events impacting a foreign insurance institution to be reported to the CIRC and the local CIRC regional office by its representative office, including penalties and fines as a result of non-compliance with laws and regulations, increased supervision and regulation by the competent authority in the domiciled country or region of the foreign insurance institution, and other events that have a material effect on the conduct of business. This is over and above what is prescribed in the 1999 Procedures.

More Detailed Provisions for Legal Liability

In the 1999 Procedures, except for the establishment of a representative office without approval, penalties for various violations are not specified and much is left to the CIRC's discretion. The number of provisions for legal liability is doubled in the New Procedures, and penalties for different violations of the New Procedures are more specific.

Other Issues

According to Article 33 of the 1999 Procedures, except for the annual report, where any other material required by the 1999 Procedures is written in English, a Chinese translation shall be submitted. No corresponding provision is found in the New Procedures.

To avoid any ambiguity, the exact meaning and interpretation of "above", "below" and "within" that accompanies numerical amounts and the calculation of time periods are specified in Articles 43 and 44 of the New Procedures.

Conclusion

The New Procedures, with their improvement of the administrative examination and approval system, will undoubtedly pave the way for easier and faster establishment of representative offices in China of foreign insurance institutions, which will in turn attract more foreign insurance institutions to share in and grow with China's insurance industry and market. Moreover, the New Procedures also ensure the stability of the insurance market with their increased prudential regulation. The adoption and implementation of the New Procedures is surely good news not only for foreign insurance institutions, but also for insurance consumers in China.