Administration of Insurance Asset Management Companies Tentative Provisions

(Promulgated by the China Insurance Regulatory Commission on April 21 2004 and effective as of June 1 2004.)

Bao Jian Hui [2004] Order No. 2

PART ONE: GENERAL PROVISIONS

Article 1: These Provisions are formulated in accordance with the PRC Insurance Law (Insurance Law) and the PRC Company Law, in order to strengthen the regulation of insurance asset management companies, safeguard against the risks with respect to insurance funds utilization, and protect the lawful rights and interests of insurance companies and insurance asset management companies.

Article 2: The China Insurance Regulatory Commission (CIRC) shall carry out regulation over insurance asset management companies in accordance with the authorization of the State Council.

Article 3: The term "insurance asset management companies" means financial institutions that are approved by the CIRC in conjunction with other relevant departments, registered according to law, and entrusted with the management of insurance funds.

The term "insurance funds" means all types of insurance reserves, capital funds, operational funds, common reserves, retained earnings and other liabilities of insurance companies, as well as assets that come into existence as a result of the aforesaid funds.

Article 4: When entrusting insurance asset management companies with the management of insurance funds, insurance companies shall comply with the Insurance Law and the relevant provisions of the CIRC, and the principles of free will, fairness, honesty and trustworthiness, and shall not damage state and public interests.

Article 5: In the management of insurance funds, insurance asset management companies shall comply with the Insurance Law and the relevant provisions of the CIRC, and shall discharge their obligations with respect to honesty, trustworthiness, prudence and diligence.

PART TWO: ESTABLISHMENT, CHANGE AND TERMINATION

Article 6: The establishment of insurance asset management companies shall be subject to the approval of the CIRC in conjunction with other relevant departments.

Article 7: Insurance asset management companies shall be of the following organizational form:

(1) limited liability company; or

(2) company limited by shares.

Article 8: When establishing an insurance asset management company, at least one of the shareholders or promoters shall be an insurance company or an insurance holding (group) company, and such insurance company or insurance holding (group) company shall fulfil the following conditions:

(1) at least eight years of experience in the insurance business;

(2) no record of administrative penalty for violation of provisions relating to funds utilization in the most recent three years;

(3) net assets of not less than Rmb1 billion, and total assets of not less than Rmb5 billion, of which the total assets of an insurance holding (group) company or an insurance company engaged in life insurance business shall not be less than Rmb10 billion;

(4) having fulfilled the solvency requirements of the CIRC;

(5) having a sound legal person governance structure and internal control system;

(6) having established an assets and liabilities matching management department and a risk control department with a sound investment information management system;

(7) the proportion of assets consolidated for management and utilization under the funds utilization department shall not be less than 50% of the total assets of the company, of which such proportion for an insurance company engaged in life insurance business shall not be less than 80%; and

(8) other conditions stipulated by the CIRC.

Article 9: The total shareholding held by an insurance company in China in an insurance asset management company shall not be less than 75%.

For the purposes of the preceding paragraph, the term "insurance company in China" refers to an insurance company or an insurance holding (group) company with legal person status that is established with the approval of the CIRC and lawfully registered.

Article 10: The registered capital of an insurance asset management company shall be a minimum of Rmb30 million or the equivalent in freely convertible currency, and shall be in the form of actual paid-in money capital.

The registered capital of an insurance asset management company shall not be less than 0.1% of the insurance funds entrusted to it for management, and if it is less than the said 0.1%, then such registered capital shall be correspondingly increased. However, if such registered capital reaches Rmb500 million, then it need not be further increased.

Article 11: To establish an insurance asset management company, an applicant shall submit a written application to the CIRC together with the following materials:

(1) an application letter for establishment;

(2) a feasibility study report and preparation for establishment plan of the company to be established;

(3) basic information regarding the shareholders, including the shareholders' names, legal representative, the form of organization, registered capital, scope of business, supporting documents for qualifications, and the balance sheet and profit and loss statement of the most recent year audited by an accounting firm;

(4) supporting documents for the shareholders that comply with criteria set forth in Article 8 hereof, and the balance sheets and profit and loss statements of the most recent three years audited by an accounting firm;

(5) names and resumes of the persons responsible for the preparatory work of the company to be established;

(6) investors' letters of intent for capital contribution or share subscription agreements; and

(7) other materials stipulated by the CIRC.

Article 12: The CIRC shall, in conjunction with relevant departments of the State Council, undertake a preliminary examination of the application to establish an insurance asset management company, and shall render a decision on whether or not to approve the preparation for establishment within three months upon receipt of the complete set of application materials. If the application is not approved, the CIRC shall provide a written notification to the applicant stating the reasons therefor.

Article 13: The applicant shall complete the establishment preparatory work within six months upon receipt from the CIRC of the approval document for preparation for establishment. If the establishment preparatory work cannot be completed within the stipulated period, the establishment preparatory period may be extended for three months upon the applicant's application and the CIRC's approval. If the establishment preparatory work still cannot be completed within the establishment preparatory period, the original approval document for preparation for establishment shall automatically become void.

The establishment preparation organization shall not engage in any business activities during the establishment preparatory period.

Article 14: After the completion of the establishment preparatory work, the applicant shall apply to the CIRC for the commencement of business and submit the following materials:

(1) a commencement of business application report;

(2) a capital verification report issued by an official capital verification institution and photocopy of the capital deposit slip;

(3) names and r?um? of the proposed senior management personnel and major practitioners;

(4) documents evidencing the ownership or use rights to the business premises;

(5) articles of association and internal management systems of the company;

(6) information regarding the information management system, funds utilization and transaction equipment, and safety precaution facilities; and

(7) other materials stipulated by the CIRC.

Article 15: Within 20 days of receipt of the complete set of application documents for commencement of business in the establishment of an insurance asset management company, the CIRC shall render a decision on whether or not to approve. If the application is approved, the CIRC shall issue the Permit to Conduct Insurance Asset Management Business. If the application is not approved, the CIRC shall provide a written notification to the applicant stating the reasons therefor.

Article 16: To establish branches or sub-branches, insurance asset management companies shall apply to the CIRC and submit the following materials:

(1) an application letter for establishment;

(2) the scope of business of the organization to be established;

(3) the business plan and market analysis for the following three years of the organization to be established;

(4) r?um? and relevant supporting materials of the persons responsible for the preparation for establishment of the organization to be established; and

(5) information regarding the information management system, funds utilization and transaction equipment, and safety precaution facilities.

Article 17: The CIRC shall undertake a preliminary examination of the application by the insurance asset management company to establish a branch or sub-branch, and shall render a decision on whether or not to approve the preparation for establishment within 20 days upon receipt of the complete set of application materials. If the application is not approved, the CIRC shall provide a written notification to the insurance asset management company stating the reasons therefor.

Article 18: The insurance asset management company shall complete the establishment preparatory work within three months upon receipt from the CIRC of the approval document for the preparation for establishment of the branch or sub-branch. If the establishment preparatory work is not completed within the establishment preparatory period, the original approval document for preparation for establishment shall automatically become void.

The establishment preparation organization shall not engage in any business activities during the establishment preparatory period.

Article 19: After the completion of the establishment preparatory work for the branch or sub-branch, the insurance asset management company shall apply to the CIRC for commencement of business and submit the following materials:

(1) an application to commence business;

(2) a report regarding the completion of the establishment preparatory work;

(3) the scope of business;

(4) r?um? and relevant supporting materials of the proposed responsible person for the organization;

(5) documents evidencing the ownership or user rights to the business premises;

(6) information regarding the information management system, funds utilization and transaction equipment, and safety precaution facilities; and

(7) information regarding the establishment of internal organs and practitioners.

Article 20: Within 20 days of receipt of the complete set of application documents for commencement of business of the established insurance asset management company branch or sub-branch, the CIRC shall render a decision on whether or not to approve. If the application is approved, the CIRC shall issue the Permit to Conduct Insurance Asset Management Business. If the application is not approved, the CIRC shall provide a written notification to the applicant stating the reasons therefor.

Article 21: Insurance asset management companies and insurance asset management company branches or sub-branches that have been approved to commence business shall, on the strength of the approval documents and the Permit to Conduct Insurance Asset Management Business, handle the registration procedure with the administration for industry and commerce and obtain a business licence before commencing operations.

Article 22: The CIRC shall uniformly design, print, issue, and may hold, cancel or revoke, the Permit to Conduct Insurance Asset Management Business. Other work units or individuals shall not design, print, issue, hold or revoke the Permit to Conduct Insurance Asset Management Business.

Article 23: Senior management personnel of insurance asset management companies shall fulfil the following qualifications:

(1) have a bachelor's degree or above;

(2) have at least 10 years of work experience in the economic industry, or at least 5 years of work experience in the financial, insurance or securities industries;

(3) have no criminal penalty record or administrative penalty record resulting from the conduct of economic activities; and

(4) other qualifications stipulated by the CIRC.

Unless otherwise stipulated by the CIRC, senior management personnel of insurance asset management companies shall not concurrently hold positions in other profit-seeking organizations.

Article 24: Insurance asset management companies shall report to the CIRC for approval upon the occurrence of any of the following circumstances:

(1) amendment of the company's articles of association;

(2) change of investors or shareholders holding 10% or more of the company's shares;

(3) modification of the business scope;

(4) cancellation of branches or sub-branches;

(5) change of business premises; or

(6) change of senior management personnel.

Article 25: If an insurance asset management company is terminated because it is dissolved, shut down or declared bankrupt in accordance with the law, the insurance funds entrusted to it for management shall not be considered part of the liquidated property.

Article 26: If an insurance asset management company is dissolved in accordance with the law, a liquidation committee shall be established. The CIRC shall provide guidance regarding the liquidation work.

If an insurance asset management company is shut down in accordance with the law, the CIRC shall immediately convene the shareholders, relevant departments and relevant professional personnel for the establishment of a liquidation committee.

If an insurance asset management company is declared bankrupt in accordance with the law, a liquidation committee shall be organized by the people's court in accordance with the law.

Article 27: The liquidation committee shall inform the creditors within 10 days from the date of establishment, and shall issue a public notice in newspapers designated by the CIRC at least three times within 60 days. The contents of such public notice shall be subject to the approval of the CIRC.

The liquidation committee shall entrust the appraisal of the company's claims, debts and assets to a creditworthy accounting firm or other professional intermediaries.

Article 28: If an insurance asset management company is dissolved, shut down or declared bankrupt in accordance with the law, the liquidation of its property and handling of claims and debts shall be carried out in accordance with relevant laws and regulations.

PART THREE: SCOPE OF BUSINESS AND RULES OF OPERATIONS

Article 29: The scope of business of insurance asset management companies shall cover all or some of the following businesses:

(1) entrusted with the management and utilization of their shareholders' renminbi or foreign currency insurance funds;

(2) entrusted with the management and utilization of the funds of insurance companies controlled by their shareholders;

(3) management and utilization of their own renminbi or foreign currency funds;

(4) other businesses approved by the CIRC; and

(5) businesses approved by other departments of the State Council.

Article 30: The management and utilization of insurance funds is restricted to bank deposits, purchase and sale of government and financial bonds, and other funds utilization methods stipulated by the state Council.

Article 31: The launch of foreign exchange funds utilization business or other foreign exchange business by insurance asset management companies shall be subject to the approval of the state department of foreign exchange administration.

Article 32: The total investment proportion in one channel and the investment proportion in a single investment of an insurance asset management company's own funds and funds entrusted to it for management shall be calculated separately.

The total investment proportion in one channel and the investment proportion in a single investment of funds that have been entrusted for utilization to other parties by an insurance company and funds that are managed and utilized by the insurance company itself shall be consolidated and calculated separately.

Article 33: Insurance companies and their entrusted insurance asset management companies shall agree upon independent custodians.

The custodians shall be commercial banks or other professional financial institutions that comply with the criteria stipulated by the CIRC.

Article 34: In respect of the management of the following funds, insurance asset management companies shall have different investment management personnel to separately manage and keep separate accounts for the funds:

(1) their own funds and insurance funds entrusted to them for management; and

(2) insurance funds of a different nature entrusted to them for management from the same insurance company.

Insurance asset management companies shall treat the different insurance funds under their management equally.

Article 35: Property obtained by an insurance asset management company due to its management, use, disposal or other circumstances of the insurance funds shall be included in the insurance funds.

Except to obtain remuneration as stipulated in the contract, if an insurance asset management company uses the insurance funds entrusted to it for management for its own benefit, the benefit obtained shall be included in the insurance funds entrusted to it for management.

Article 36: Written contracts shall be entered into for both insurance asset management companies entrusted with the management and utilization of insurance funds and custodians taking custody of insurance funds.

The CIRC shall formulate separate guidelines regarding the contents and formats of the written contracts.

Article 37: Insurance asset management companies shall obtain asset management fees as stipulated in the contract, and shall report to the CIRC regarding the obtaining of such fees.

Rates for asset management shall be determined in accordance with the principles of fairness and reasonableness.

The CIRC may set out the standard for insurance asset management rates.

Article 38: Insurance asset management companies shall not:

(1) provide security;

(2) promise that the funds entrusted to them for management shall not suffer losses, or guarantee minimum gains;

(3) further entrust insurance funds that have been entrusted to them for management;

(4) use insurance funds entrusted to them for management for the benefit of third parties other than the entrusting parties;

(5) conduct mutual utilization or transactions of funds with shareholders or with insurance companies that have entrusted them with the utilization and management of insurance funds, or manipulate funds entrusted to them from different sources to conduct utilization or transactions between such funds;

(6) obtain, together with the entrusting party, illegal benefits in the name of asset management fees or by other methods; or

(7) other acts prohibited by relevant state laws, regulations or regulatory departments.

Article 39: If an insurance asset management company violates relevant state provisions or contractual stipulations, resulting in loss to the insurance funds, the insurance asset management company shall compensate for such loss. No remuneration shall be obtained unless such loss has been compensated for.

Article 40: The complete records regarding the management and utilization of insurance funds by, and the contracts entrusting the management and utilization of insurance funds to, insurance asset management companies shall be kept for at least 15 years.

Article 41: Insurance asset management companies shall periodically, or as stipulated in the contract, submit reports regarding the management, utilization, disposal, receipts and payments of the insurance funds entrusted to them for management.

The entrusting party shall have the right to review, copy or duplicate accounts and other documents related to its entrusted insurance funds, as well as the power to request the entrusted party to explain the details.

Article 42: The year-end financial reports on an insurance asset management company's own funds and insurance funds entrusted to it for management shall be audited by an accounting firm.

Article 43: Insurance asset management companies and custodians of insurance funds owe an obligation of confidentiality in accordance with the law to the entrusting party as well as concerning the details and information on the utilization of the insurance funds.

Article 44: Claims arising from the management, utilization and disposal of funds entrusted to an insurance asset management company as the entrusted party shall not be set-off against debts arising from the insurance asset management company's own property.

Claims and debts arising from the management, utilization and disposal of property of different entrusting parties entrusted to an insurance asset management company as the entrusted party shall not be set-off against each other.

In the case of civil disputes between an insurance asset management company and other social organizations or individuals, insurance funds entrusted to it for management shall not be subject to seizure, freezing or compensation, etc.

PART FOUR: RISK CONTROL AND REGULATION

Article 45: Insurance asset management companies shall establish sound corporate governance structures and effective internal control systems, establish investment decision-making departments and risk control departments, and establish check and balance systems to supervise one another.

Article 46: Insurance asset management companies shall strengthen digitization, and establish sound information management systems with respect to investment decision-making, funds utilization and financial accounting.

Insurance asset management companies shall possess security and protective measures relevant to their business operations.

Article 47: Insurance asset management companies shall establish supervisory boards in accordance with relevant provisions.

The entrusting party may delegate supervisory personnel to the insurance asset management company to which insurance funds are entrusted for management. Such supervisory personnel shall supervise the performance of contract by the insurance asset management company on behalf of the entrusting party, but shall not interfere with the normal operations of the insurance asset management company.

Article 48: Insurance asset management companies shall have the right to attend the relevant meetings of the assets and liabilities matching management departments of insurance companies.

Article 49: Insurance asset management companies shall submit to the CIRC photocopies of the agreement for entrustment of insurance funds management and the custodianship agreement within 20 days of the execution of the said agreements.

Article 50: Insurance asset management companies shall submit relevant statements and reports such as balance sheets, profit and loss statements, business statistical tables, and financial analyses, and other information in accordance with the CIRC provisions.

The CIRC shall issue the contents and formats of statements and reports required to be submitted by insurance asset management companies.

Article 51: With respect to supervision and inspection of insurance asset management companies, the CIRC adopts the format of a combination of on-site and off-site regulation.

The CIRC may entrust accounting firms or other professional intermediary institutions to carry out inspections of insurance asset management companies.

Article 52: If insurance companies and insurance asset management companies violate these Provisions and relevant laws and regulations, the CIRC shall impose administrative penalties on these insurance companies and insurance asset management companies and their senior management personnel and directly responsible persons, in accordance with the Insurance Law and relevant administrative regulations.

PART FIVE: SUPPLEMENTARY PROVISIONS

Article 53: These Provisions shall come into effect as of June 1 2004.

Translation provided by Boss & Young, Attorneys at Law. All rights reserved.