PRC Administration of Foreign-invested Insurance Companies Regulations Implementing Rules

(Promulgated by the China Insurance Regulatory Commission on May 13 2004 and effective as of June 15 2004.)

Article 1: These Rules are formulated in accordance with the PRC Insurance Law and the PRC Administration of Foreign-invested Insurance Companies Regulations (Regulations).

Article 2: For the purposes of the Regulations, the term foreign insurance companies means insurance companies that are registered and engage in insurance business outside the territory of China.

Article 3: Where a foreign insurance company and a Chinese company or enterprise establish a joint venture insurance company within the territory of China to engage in personal insurance business (Joint Venture Life Insurance Company), the proportion of foreign investment shall not exceed 50% of the total share capital of the company.

The shares held by the foreign insurance company, either directly or indirectly, in the Joint Venture Life Insurance Company shall not exceed the proportion stated in the preceding paragraph.

Article 4: Where, prior to the effective date of the Regulations, the registered capital or operational funds of the foreign-invested insurance company established within the territory of China has not attained to Rmb200 million or the equivalent value of other freely convertible currency, any shortfall shall be made up within two years after the effective date of the Rules. The China Insurance Regulatory Commission shall not approve any application for launch of new business where the registered capital or operational fund has not been fully paid in.

Article 5: The registered capital or operational funds of a foreign-invested insurance company shall be in the form of actual paid-in currency.

Article 6: After the establishment of a branch, a foreign insurance company shall not, in any manner, withdraw its operational funds.

Article 7: For the purposes of Article 8(1) of the Regulations, the phrase "have been in the insurance business for at least 30 years" means the continuous engaging in the insurance business for 30 years or more by a foreign insurance company. Acquisitions of and mergers with other organizations, or mergers with other organizations to establish a new insurance company, by a foreign insurance company shall not affect the calculation of the period of time it has been engaged in the insurance business.

The period of time engaged in the insurance business by a subsidiary of a foreign insurance company shall be calculated from the time the subsidiary is established.

Article 8: For the purposes of Article 8(2) of the Regulations, the term "representative organizations" means the following representative organizations approved by the China Insurance Regulatory Commission (CIRC):

(1) representative organizations established by foreign insurance companies; and

(2) representative organizations established by the enterprise group of foreign insurance companies.

Article 9: Representative organizations established by foreign insurance companies or their enterprise group shall only be eligible to apply for establishment of one foreign-invested insurance company.

Article 10: For purposes of Article 8(3) of the Regulations, the phrase "end of the year prior to the application for establishment" means the end of the fiscal year immediately preceding the date of application.

Article 11: For purposes of Article 8(7) of the Regulations, the term "other prudential criteria" shall, at least, include the following criteria:

(1) a rational legal person governance system;

(2) a robust risk management system;

(3) a sound internal control system;

(4) an effective management information system; and

(5) good business performance, with no record of serious violations of laws or regulations.

Article 12: If an applicant is unable to provide the business licence (duplicate) as required by Article 9(2) of the Regulations, it may provide a certified photocopy of the business licence or a written proof issued by the relevant competent authority stating that the applicant has the right to engage in the insurance business.

Article 13: For the purposes of Article 9(2) of the Regulations, "proof of compliance with solvency standards issued by the relevant competent authority of the host country or region of the foreign applicant" shall include one of the following:

(1) that the solvency level of the applicant complied with the regulatory requirements of such country or region, in the fiscal year immediately preceding the date on which the relevant competent authority issued the proof;

(2) that there is no record of non-compliance by the applicant with the solvency standards of such country or region, in the fiscal year immediately preceding the date on which the relevant competent authority has issued the proof.

Article 14: For the purposes of Article 9(2) of the Regulations, "an opinion on the application issued by the relevant competent authority of the host country or region of the foreign applicant" shall include the following:

(1) whether or not the application by the applicant to establish an insurance organization within the territory of China is in compliance with the laws and regulations of such country or region;

(2) whether or not the relevant competent authority consents to the applicant's application; and

(3) penalty record of the applicant for the three years immediately preceding the date on which the relevant competent authority issued such opinion.

Article 15: For the purposes of Article 9(3) of the Regulations, an "annual report" shall include the balance sheet, profit and loss statement and cash flow statement of the applicant for the three fiscal years immediately preceding the application date.

The financial statements specified in the preceding paragraph shall be accompanied by an auditor's opinion issued by an accounting firm or auditing firm recognized by the applicant's host country or region.

Article 16: Unless otherwise provided by the laws and administrative regulations, or as approved by the State Council, the "Chinese applicant" referred to in Article 9(4) of the Regulations shall fulfil the following requirements:

(1) it is a company or enterprise with legal person status that has registered with the administration for industry and commerce, with the exception of commercial banks, securities organizations and foreign-invested enterprises as stipulated by the PRC Wholly Foreign-owned Enterprise Law;

(2) the application has been approved by the competent enterprise administrative authority or by the shareholders' meetings;

(3) its business is good and was profitable in the fiscal year immediately preceding the application date;

(4) its capital contribution is made from its own funds of a lawful source.

Article 17: The relevant documentation to be submitted by a Chinese applicant that intends to establish a joint venture insurance company shall include the business licence (duplicate), articles of association of the company or enterprise, business structure, business history, annual reports of the most recent three years, and any penalty records of the most recent three years.

Article 18: The person responsible for preparing to set up a foreign-invested insurance company shall fulfil the following requirements:

(1) higher education or above;

(2) at least two years of insurance work experience or other related work experience; and

(3) no record of unlawful or criminal acts.

Article 19: Where the applicant intends to apply for an extension of the preparation period in accordance with Article 11 of the Regulations, a written application, together with the reasons therefor, shall be submitted to the CIRC within one month prior to the expiry date of the preparation period.

Article 20: For the purposes of Article 11(1) of the Regulations, a "preparation report" shall include a summary of the other items referred to in the said article.

Article 21: For the purposes of Article 11(4) of the Regulations, the term "official capital verification organization" means an accounting firm that fulfils the requirements of the CIRC.

Article 22: For the purposes of Article 11(4) of the Regulations, "capital verification proofs" shall include the following:

(1) a capital verification report issued by the official capital verification organization; and

(2) a photocopy of the original bank account document for deposit of registered capital or operational funds.

Article 23: For the purposes of Article 11(5) of the Regulations, the term "principal responsible person" means the general manager of the proposed branch of the foreign insurance company.

The phrase "authorization letter held by the proposed principal responsible person of the branch of the foreign insurance company" means the authorization letter for the proposed general manager of the branch of the foreign insurance company signed by the chairman of the board of directors or general manager of the foreign insurance company.

The authorization letter shall clearly state the extent of the powers granted to the authorized person.

Article 24: For the purposes of Article 11(6) of the Regulations, "senior management personnel of the company to be established" shall fulfil the qualification requirements stipulated by the CIRC.

The senior management personnel of the branch of the foreign insurance company shall possess the qualifications as the senior management personnel of the parent insurance company.

Article 25: For the purposes of Article 11(9) of the Regulations, the phrase "materials concerning the business premises of the company to be established" means the documentation evidencing the ownership or use rights to the business premises.

For the purposes of Article 11(9) of the Regulations, "materials concerning other business-related facilities of the company to be established" shall, at least, include information on the disposition of computer equipment and construction of computer network systems, as well as on the information management systems.

Article 26: The following documentation or materials, which the Regulations and the Rules require to be provided by the foreign insurance company that is applying to establish a foreign-invested insurance company, shall have been notarized by a lawfully established notary organization in the host country or region, or certified by the Chinese embassy or consulate in such country or region:

(1) a business licence (duplicate) or certified photocopy of such business licence;

(2) the authorization letter held by the proposed principal responsible person of the branch of the foreign insurance company; and

(3) letter of guarantee, that the foreign insurance company shall be responsible for the taxes and debts of its branch within the territory of China.

Article 27: Foreign-invested insurance companies may, according to their business development requirements, apply to establish branches and sub-branches.

Branches of foreign insurance companies may only launch their business within the administrative jurisdiction of the provinces, autonomous regions or municipalities directly under the central government where they are located. Joint venture insurance companies and wholly foreign-owned insurance companies shall establish branches for the launch of business in provinces, autonomous regions or municipalities directly under the central government other than its place of domicile.

Foreign-invested insurance companies may, according to their actual circumstances, apply to establish central sub-branches, sub-branches, business centres or sales service centres. Where the CIRC has other stipulations on the establishment and administration of sales service centres, such stipulations shall prevail.

Article 28: Joint venture insurance companies and wholly foreign-owned insurance companies that have been established with the minimum registered capital requirement of Rmb200 million shall, when establishing the first branch in each province, autonomous region or municipality directly under the central government other than their places of domicile, increase their registered capital by not less than Rmb20 million.

When applying to establish branches, joint venture insurance companies and wholly foreign-owned insurance companies whose registered capital has already reached the amount after the increase as stipulated in the preceding paragraph need not further increase their registered capital correspondingly.

When joint venture insurance companies and wholly foreign-owned insurance companies with registered capital of Rmb500 million establish branches under circumstances of sufficient solvency, they need not increase their registered capital.

Article 29: To apply for establishment of branches or sub-branches, foreign-invested insurance companies shall fulfil the following requirements:

(1) their solvency levels comply with the relevant requirements of the CIRC;

(2) they have a sound internal control system and no penalty record, and in the case of over two years of business operations, have no penalty record in the most recent two years; and

(3) they have the senior management personnel for the branches or sub-branches with qualifications that comply with the qualification requirements of the CIRC.

Article 30: The application to establish branches or sub-branches shall be made by the foreign-invested insurance company to the CIRC, and the following materials shall be submitted in triplicate:

(1) an application letter for establishment;

(2) an audited solvency report for the end of the preceding year and for the end of the most recent quarter;

(3) three-year business development plans and market analyses for the organization to be established; and

(4) a résum?and related supporting materials of the person responsible for the establishment preparation for the organization to be established.

Article 31: The CIRC shall examine the application to establish branches or sub-branches and shall, within 20 days of the receipt of the complete set of application materials, render a decision on whether or not to approve the preparation for establishment. If the application is not approved, the CIRC shall provide a written notification to the applicant specifying the reasons therefor.

Following the approval of the application, the applicant shall complete the establishment for the branch or sub-branch within six months. If the establishment preparation work is not completed within the stipulated time period due to proper reasons, such preparation period may be extended for another three months upon the approval of the CIRC. If the establishment preparation work is not completed within the extended time period, the initial approval documentation made by the CIRC shall automatically become void.

The establishment preparation organization shall not engage in any insurance business activities.

Article 32: Upon the completion of the establishment preparation work of the branch or sub-branch, the applicant shall apply to the CIRC to commence business, and shall submit the following materials in triplicate:

(1) an application letter for commencement of business;

(2) a report on the completion of the establishment preparation work;

(3) a résum?and related supporting materials of the proposed senior management personnel; and

(4) relevant documentation evidencing the ownership or use rights of the office premises, information on the disposition of computer equipment and construction of computer network systems, and information concerning the internal organizational structure, personnel and so on, of the organization proposed to be established.

Article 33: The CIRC shall, within 20 days of the receipt of the complete set of application materials for business commencement of the established branch or sub-branch, render a decision on whether or not to approve the application. If the application is approved, an insurance business permit for branches and sub-branches shall be issued. If the application is not approved, the CIRC shall provide a written notification to the applicant specifying the reasons therefor.

The branch or sub-branch of the insurance company that has been approved to commence business shall, on the strength of the approval documents and insurance permit, complete registration procedures with the administration for industry and commerce and obtain a business licence before commencing business.

Article 34: The examination and administration of the qualifications of the senior management personnel of foreign-invested insurance companies and their branches and sub-branches are subject to the relevant provisions of the CIRC, unless otherwise provided by these Rules.

Article 35: Joint venture and wholly foreign-owned property insurance companies that apply for dissolution as a result of division, merger or dissolution reasons stipulated in the companies' articles of association shall apply to the CIRC for approval and submit the following materials:

(1) an application letter signed by the company's chairman of the board of directors;

(2) a resolution by the shareholders' meeting of the company;

(3) composition of the proposed liquidation committee and the liquidation plan; and

(4) plans concerning the treatment of outstanding liabilities.

Article 36: Joint venture and wholly foreign-owned property insurance companies that have been approved by the CIRC for dissolution shall, from the date on which the CIRC approval documentation is received, cease any new business activities and return their insurance business permits to the CIRC, and shall establish a liquidation committee within 15 days.

Article 37: The liquidation committee shall, within five days of its establishment, provide a written notification concerning the company's commencement of liquidation proceedings to the administration for industry and commerce, taxation department, labour and social security department and other relevant departments.

Article 38: The liquidation committee shall, within one month from the date of its establishment, retain an accounting firm that fulfils the requirements of the CIRC to conduct an audit. Within three months from the date the accounting firm is retained, an audit report shall be submitted to the CIRC.

Article 39: The liquidation committee shall, before the 10th day of every month, submit a report concerning the discharge of liabilities, disposal of assets and other latest circumstances to the CIRC.

Article 40: For the purposes of Article 28 of the Regulations, the term "newspapers" means newspapers designated by the CIRC.

Article 41: Foreign property insurance companies shall apply to the CIRC for the dissolution of their branches within the territory of China, and shall submit the following materials:

(1) an application letter signed by the foreign property insurance company's chairman of the board of directors, or its general manager;

(2) composition of the proposed liquidation committee and the liquidation plan; and

(3) plans concerning the treatment of outstanding liabilities.

Specific procedures for dissolution by foreign property insurance companies of their branches within the territory of China shall be handled in accordance with the Regulations and the relevant application procedures in these Rules for dissolution of joint venture and wholly foreign-owned property insurance companies.

Where the parent company of a branch of a foreign property insurance company is dissolved, shut down in accordance with the law or declared bankrupt, the liquidation and treatment of liabilities of such branch shall be handled in accordance with Article 30 of the Regulations and corresponding provisions in these Rules concerning dissolution of joint venture and wholly foreign-owned property insurance companies.

Article 42: Foreign-invested insurance companies that violate relevant provisions of these Rules shall be penalized by the CIRC in accordance with the Insurance Law, the Regulations and other laws and administrative regulations.

Article 43: Documentation, materials and written reports required by the Regulations and these Rules to be submitted and delivered shall be provided in the Chinese language. Where there is discrepancy between the Chinese language version and the foreign language version, the Chinese language version shall prevail.

Article 44: Any time period stipulated in the Regulations and these Rules shall be calculated from the date on which the relevant materials are received by the CIRC. Where the application documentation provided by the applicant is incomplete and requires subsequent submission, the time period shall be calculated afresh from the date on which the materials subsequently submitted are received by the CIRC.

Relevant approval and reporting time periods stipulated in these Rules shall refer to working days.

Article 45: In the case of administration of foreign-invested insurance companies that is not provided in the Regulations and these Rules, other laws, administrative regulations and relevant stipulations of the CIRC shall be applicable.

The establishment of foreign-invested reinsurance companies shall be handled in accordance with the Establishment of Reinsurance Company Provisions. Where it is not provided in the Establishment of Reinsurance Company Provisions, these Rules shall be applicable.

Article 46: The Regulations and these Rules shall, mutatis mutandis, apply to insurance companies that are established and operated in the Mainland by insurance companies from the Hong Kong Special Administrative Region, the Macao Special Administrative Region and Taiwan. Where laws, administrative regulations or administrative agreements provide otherwise, such stipulations shall be applicable.

Article 47: These Rules shall come into effect as of June 15 2004.

1 Translation provided by Boss & Young, Attorneys at Law.