Risk Control Guidelines for Utilization of Insurance Funds (Trial Implementation)

(Issued by the China Insurance Regulatory Commission on April 28 2004 and effective June 1 2004.)

Bao Jian Fa [2004] No.43

PART ONE: GENERAL PROVISIONS

Article 1: These Guidelines are formulated in order to provide guidance for insurance companies and insurance asset management companies to strengthen management over insurance funds utilizations, take precautions against insurance funds utilization risks, and protect the interests of the insured, in accordance with the PRC Insurance Law, Administration of Insurance Companies Provisions and other laws, regulations and administrative rules, and the requirements of prudence regulation by the China Insurance Regulatory Commission (hereafter, the CIRC).

Article 2: For the purposes of these Guidelines, the term "risk control system for utilization of insurance funds" is the collective name of the organizational structures, institutional arrangements and measures taken by insurance companies and insurance asset management companies to identify, appraise, manage and control the risks encountered during the process of insurance funds utilization, in order to maintain the financial stability and solvency of insurance companies.

Article 3: Insurance companies and insurance asset management companies shall, in accordance with the requirements of these Guidelines and on the basis of their specific circumstances, establish their risk control systems for the utilization of insurance funds that operate in accordance with regulations and under highly efficient management, set up sound risk control institutions for the utilization of insurance funds, and give full consideration to the environment for control, risk identification and appraisal, activities and measures for controlling, information communication and feedback, supervision and evaluation and other factors.

Article 4: These Guidelines shall be applicable to insurance companies and insurance asset management companies registered within the territory of the People's Republic of China.

PART TWO: FUNDAMENTAL PRINCIPLES OF RISK CONTROL

Article 5: Insurance companies and insurance asset management companies shall follow the following principles to establish their risk control systems for utilization of insurance funds:

(1) Principle of independent checks and balances. The set up of organizations, departments and positions related to insurance funds utilization shall have clear rights and responsibilities, be independent from one another, and check and balance one another.

(2) Principle of overall control. Risk control procedures for the utilization of insurance funds shall cover all funds utilization businesses and departments, funds utilization personnel at all levels, and all sections related to insurance funds utilization.

(3) Principle of timeliness and suitability. Risk control systems for the utilization of insurance funds shall be commensurate with their environments, can realize the goal of internal control with reasonable costs, and shall be correspondingly updated, supplemented, adjusted and improved on a timely basis according to the changes to the internal and external environments of the insurance companies and insurance asset management companies.

(4) Principle of accountability. For each section to the risk control system for utilization of insurance funds, there shall be specific responsible persons; and the liability of the person directly responsible for violation of the system and that of the senior management personnel bearing leadership responsibility shall be pursued in accordance with provisions.

Article 6: Risk control institutions for utilization of insurance funds of insurance companies and insurance asset management companies shall meet the following requirements:

(1) they can guarantee that the utilization of insurance funds is in compliance with laws and regulations, implementation of internal rules is effective, and such implementation is supervised and inspected;

(2) they can guarantee the implementation of scientific and effective management of assets and liabilities and, under the prerequisite that the safety and liquidity of assets are guaranteed, pursue steady long-term investment income;

(3) they can guarantee centralized management and specialized utilization of insurance funds, and establish standardized risk control processes and scientific and democratic decision-making mechanisms;

(4) they can guarantee safety and integrity in the asset management of insurance companies and insurance asset management companies.

(5) they can guarantee the security, reliability and integrity of business records, financial records and other information; and

(6) they can guarantee to support insurance funds' utilization management personnel at all levels to have sufficient understanding of risk control and professional ethics.

PART THREE: ORGANIZATIONAL ENVIRONMENT CONTROL

Article 7: The board of directors of insurance companies and insurance asset management companies shall be responsible for the establishment of risk control systems for utilization of insurance funds and maintain the effectiveness thereof. They shall specify a special committee responsible for the establishment, appraisal and optimization of risk control institutions, and for the implementation inspection of risk control institutions and the due diligence of internal control personnel.

Article 8: The management of insurance companies and insurance asset management companies shall be responsible for the implementation of the risk control institutions for utilization of insurance funds and be responsible for the results thereof.

Article 9: Insurance companies and insurance asset management companies shall, in accordance with the fundamental principles and requirements of risk control, establish a position responsibility system and an operating mechanism for insurance funds utilization.

Each organization, department and position shall specify its own responsibilities and powers. In order to avoid blanks or loopholes within risk control, various works shall be regulated and systematized by the formulation of a compliant position responsibility system, strict operational procedure and reasonable working standards.

The insurance funds utilization and operation mechanism shall include democratic, transparent and compliant decision-making procedures and rules of management and discussion, efficient and strict business implementation systems, and sound and effective internal supervision and feedback systems.

Article 10: Senior management personnel of insurance companies and insurance asset management companies shall not be concurrently responsible for the management of the investment decision-making department, the investment transaction department and the risk control department. The functional independence of the risk control department shall be maintained.

Article 11: Insurance funds shall be put under central management and specialized operation. Functions regarding insurance funds' strategic and tactical allocations shall be separated from each other, as shall the functions regarding investment decision-making and investment transactions. Departments and positions such as project appraisal, investment decision-making, implementation of transactions, settlement of funds, accounting, and risk control, etc. shall be independent from each other.

Insurance funds shall be managed and utilized by specialized funds utilization departments of insurance companies, insurance asset management companies, or other specialized investment organizations that meet the conditions stipulated by the CIRC. Branches and sub-branches or departments other than specialized funds utilization departments of insurance companies must not engage in any insurance funds utilization business.

Article 12: Insurance companies shall establish a third-party custodianship mechanism. When choosing custodians, insurance companies shall conduct strict appraisal over their creditworthiness, liquidation capability, account management capability, risk management capability, performance appraisal capability and other factors. The qualifications of custodians shall meet the relevant stipulations set out by the CIRC.

The method of internal custody may be adopted for investment products of insurance companies that are low risk and not for market transactions. The term "internal custody" refers to a funds management method whereby an internal functional department of an insurance company independently assumes the duty of taking custody of insurance funds. The functional department assuming the duty of internal custody shall be separated from the investment transaction department and shall concurrently have the functions of accounts management, risk management, performance appraisal and others.

Article 13: Insurance companies shall have specialized departments responsible for the entrustment affairs of insurance funds, appraising the risk circumstances of the entrusted assets and the investment performance and management capability of the entrusted management organizations.

Article 14: Insurance companies and insurance asset management companies shall establish effective asset segregation systems and carry out fair and just investment management.

Insurance companies shall, according to the nature or sources of insurance funds, establish independent accounts and carry out independent accounting. Insurance asset management companies' own funds, as well as insurance funds entrusted to them for management and insurance funds of a different nature entrusted to them for management from the same insurance company, shall be separately managed by different investment management personnel.

Article 15: Smooth information transfer mechanisms shall be established between insurance companies' funds utilization departments and departments such as risk control, finance and auditing, as well as between insurance companies and insurance asset management companies, and there shall be a clear reporting relationship between various organs, departments and positions in order to ensure that the operational information of each section can be effectively communicated, implemented, checked, evaluated and responded to, so that an information platform for mutual supervision and mutual checks and balances can be established.

PART FOUR: MAIN CONTENTS OF RISK CONTROL

Section One: Management of Assets and Liabilities

Article 16: Insurance funds utilization shall follow the principle of matching management of assets and liabilities and the principles of safety, liquidity and profitability, to avoid risks arising from the ineffective matching of assets and liabilities in aspects such as quantity, time period, cost, profit and liquidity.

Article 17: The board of directors of an insurance company shall put forward strategic assets allocation plans according to the business strategies and policies of the company and the characteristics of the insurance funds. The management of an insurance company shall, according to the strategic assets allocation plan of the board of directors and on the basis of the study and analysis of liabilities-characterized indices such as sources of insurance funds, term, requirements on profit, requirements on liquidity, risk tolerance level and solvency, take the risk control system of the company and the market situation into consideration and formulate the investment guidelines for insurance funds utilization.

The investment guidelines shall include the investment scope, strategic assets allocation, allocation of investment powers, investment restrictions, performance appraisal and other contents.

Article 18: When formulating strategic assets allocation plans and investment guidelines, the board of directors and the management of an insurance company shall be joined by specialized funds utilization management personnel.

The funds utilization departments of insurance companies or insurance asset management companies shall, in accordance with the status of the market development and the characteristics of insurance funds utilization, advise on the strategic assets allocation plans and investment guidelines.

Article 19: Products, actuary, finance and other departments of insurance companies along with funds utilization departments of such companies or along with insurance asset management companies shall fully communicate with one another on assets and liabilities management problems encountered in the course of insurance funds utilization, to improve the effectiveness of assets and liabilities management.

Article 20: The funds utilization departments of insurance companies or insurance asset management companies shall utilize insurance funds in strict compliance with the strategic assets allocation plans and the investment guidelines.

Section Two: Management of Investment Decision Making

Article 21: The investment decision making of insurance companies and insurance asset management companies shall strictly abide by relevant stipulations of laws and regulations, and comply with the requirements on investment scope and investment restrictions, etc., of insurance funds utilization.

Article 22: The investment decision making of the boards of directors of insurance companies and insurance asset management companies shall cover the following:

(1) deliberating on the rules, decision-making procedure and authorization system for insurance funds utilization;

(2) determining assets' strategic allocation plans, investment policies and scope of flexibility in the course of implementing the strategic allocation plans;

(3) determining the format for managing insurance funds utilization;

(4) determining the risk tolerance level of insurance funds utilization;

(5) determining the conditions and indices for choosing, restricting or giving up the holding of a certain type of assets; and

(6) formulating investment policies and plans for new investment products.

Article 23: Insurance companies and insurance asset management companies shall establish and improve a relatively centralized and hierarchically managed investment decision-making authorization system with balanced powers and responsibilities, conduct inspections over the authorization and check on the accountability level by level. The investment decision-making authorization system shall cover the following:

(1) the system shall establish and improve the standards and procedures for authorization, specify the method, scope, validity period and responsibilities of authorization, ensure the effective implementation of the authorization system, and have authorization of all businesses made in writing;

(2) all organs, departments and positions shall have detailed description of their duties, and personnel at all positions shall have understood their duties before taking up their positions, promise in writing to abide by such duties and bear responsibilities within the scope of authorization; and

(3) the system shall guarantee the appropriate allocation of powers and the effective implementation of authorization and make timely amendments, adjustments or corrections according to the appraisal results of the authorized organs, departments and personnel.

Article 24: The investment decision-making powers of insurance companies and insurance asset management companies may allow total control or proportional control. Investment decision-making authorization shall specify the authorizing party, the authorized party, authorization standards, authorization procedure and handling for exceeding the authorization.

Article 25: The management and the funds utilization department of an insurance company shall make corresponding investment decisions within their respective powers according to the authorizations of the board of directors and the management respectively. The management of an insurance asset management company shall make investment decisions according to the authorization of the board of directors.

Article 26: Insurance companies and insurance asset management companies shall establish specific investment decision-making procedures according to the process of investigation, demonstration, decision making and implementation.

Article 27: Investment decisions shall be made on solid grounds and there shall be written records on which signatures of relevant responsible persons shall be included. Important investment decisions shall have detailed research reports. Insurance companies and insurance asset management companies shall guarantee the objectivity, independency and accuracy of such research reports through clear position duties, tight research work flow, standard report format, scientific and standardized research method, and an effective quality appraisal system.

Article 28: Insurance companies and insurance asset management companies shall, on the basis of adequate research, set down the standard for choosing investment products, and investment decisions shall be made according to such standard.

Article 29: Investment instructions of insurance companies and insurance asset management companies shall be in compliance with specified risk tolerance level requirements.

Section Three: Management of Investment Transactions

Article 30: Independent transactions departments shall be established within the funds utilization departments of insurance companies and in insurance asset management companies to effectively control the various transaction risks encountered in the course of investment and ensure that investment transactions are carried out smoothly.

Investment transactions shall be carried out under a centralized transaction system. Centralized transactions means that all the transaction instructions for the utilization of insurance funds must be carried out by an independent transactions department.

Article 31: For transactions within an exchange, all the investment instructions shall be carried out only after they have been reviewed and confirmed by the transactions department to be in compliance with laws and regulations.

Article 32: For transactions outside an exchange, insurance companies and insurance asset management companies shall establish effective monitoring and control mechanisms over the handling personnel to closely monitor and control the key steps in the course of transactions such as negotiation and price enquiry. Negotiation and price enquiry shall be separated from the execution of transactions.

Article 33: Insurance companies and insurance asset management companies shall establish monitoring systems, early warning systems and feedback systems for centralized transactions. The centralized transaction premises shall have sound safety installations and strict administrative provisions.

Article 34: In the course of transactions, insurance companies and insurance asset management companies shall implement strict fair transaction systems to ensure that the interests of insurance funds of different natures or sources are equally treated.

Article 35: Insurance companies and insurance asset management companies shall establish sound transaction recording systems and each day's transaction records shall be checked and filed in a timely manner.

Section Four: Management of Risk Technology Systems

Article 36: Insurance companies and insurance asset management companies shall establish risk management systems for the utilization of insurance funds to carry out qualitative analyses for the possible risks encountered in the course of insurance funds utilization, and shall adopt the statistical analysis method to set out effective risk control measures through the establishment of quantitative indices to classify, identify, quantify and evaluate risks.

Article 37: Insurance companies and insurance asset management companies shall have specialized departments responsible for the risk management of insurance funds utilization equipped with sufficient specialized risk management personnel.

The department assuming risk management duties shall be responsible for the risk appraisal and monitoring work for the utilization of insurance funds. Its main duties are:

(1) to establish a risk analysis and appraisal system to analyze the risk circumstances and possible losses of insurance funds and investment portfolios in different markets and under different circumstances and provide qualitative and quantitative risk analysis reports for the board of directors and the management to make risk-related decisions. Transaction information and risk appraisal reports shall be submitted in a timely manner for significant and unexpected incidents or abnormal market circumstances;

(2) to monitor whether or not the utilization of insurance funds meets the requirements of the risk control system, risk limitations and risk tolerance level set by the board of directors and the management;

(3) to monitor whether or not the investment operation of insurance asset management companies meet the requirements of the asset management entrustment agreement and the investment guidelines; and

(4) to carry out dynamic monitoring over the utilization of insurance funds.

Article 38: The department responsible for risk management shall have the right to information for all insurance funds utilization activities, to review and inquire about all data, materials and details related to the insurance funds utilization business, and to attend all meetings related to utilization of insurance funds.

Article 39: The board of directors and the management of insurance companies and insurance asset management companies shall periodically acquaint themselves with the risks encountered in the utilization of insurance funds.

Article 40: Insurance companies and insurance asset management companies shall establish a full set of quantitative index system for risk control to ensure the scientific method, objectivity and practicality of the risk control work.

The quantitative indices shall at least include the following: compliance indices, financial performance indices, asset quality indices, market risk indices (including interest rates, exchange rates, price fluctuation rates and others), credit risk indices, liquidity risk indices, operational risk indices, and assets and liabilities matching risk indices, etc.

Article 41: Insurance companies and insurance asset management companies shall carry out effective monitoring and management over at least the following insurance funds utilization risks:

(1) market price risks. They shall establish an effective market risk appraisal and management mechanism to carry out effective management of the risk of market price fluctuations;

(2) credit risks. They shall establish a fair credit risk management system to carry out effective appraisal and prevention of credit risks of counterparties, brokers, intermediaries and investment products;

(3) interest rate and exchange rate risks. They shall establish necessary management systems for interest rate and exchange rate risks to carry out effective appraisal and management of interest rate and exchange rate risks;

(4) liquidity risks. They shall set forth rational liquidity appraisal standards and management strategies, putting together the liquidity requirements of liabilities, to effectively manage liquidity risks;

(5) operational risks. They shall establish strict internal control mechanisms to eliminate the operational risks resulting from human errors, system failures and defects of internal controls and to guarantee the orderly and compliant running of the risk control system for utilization of insurance funds;

(6) risks of violation of laws and regulations. They shall establish compliance examination systems in accordance with provisions. The drafting, amendment and signing of insurance funds utilization contracts and other related documents shall require independent examination and participation of legal professionals. Each section of insurance funds utilization must include compliant examination procedures.

Article 42: Insurance companies and insurance asset management companies shall learn from advanced international risk management theories and risk management techniques to carry out asset management and set forth asset management strategies, and, according to the appraisal and measurement of risk values of the assets held by them, make necessary adjustments to the investment portfolios to disperse and hedge against insurance funds utilization risks.

Article 43: Insurance companies and insurance asset management companies shall strengthen the classified management and proper custody of various documents and files related to the utilization of insurance funds, including various meeting minutes and resolutions, investment decision records, investment instruction records, transaction records, business agreements, customer information, vouchers and accounting records, and regulations and rules, etc.

Article 44: Insurance companies and insurance asset management companies shall, in accordance with the Contingency Measures for Major Unexpected Events of the Insurance Industry Provisions, establish a contingency report system for major unexpected events in the insurance funds utilization business and set out contingency plans to prevent the occurrence of serious solvency crises of insurance companies resulting from major unexpected events that take place in the course of insurance funds utilization.

Article 45: Insurance companies and insurance asset management companies shall establish rational performance appraisal systems for the utilization of insurance funds, and incorporate investment income and risks into the appraisal system to carry out comprehensive appraisal.

Section Five: Management of Information Technology Systems

Article 46: Insurance companies and insurance asset management companies shall, in accordance with the requirements regarding information systems control in the Guiding Principles for Establishment of Internal Control Systems of Insurance Companies, set up strict management systems in respect of information technology systems for the utilization of insurance funds.

Article 47: When developing information technology systems for the utilization of insurance funds, attention shall be paid to the safety and confidentiality of the systems and the auditability of the computer systems shall be guaranteed. The information technology systems for the utilization of insurance funds shall be subject to a joint check and acceptance by information, finance, funds utilization, risk control and audit and other departments before such systems are put into operation.

Article 48: Insurance companies and insurance asset management companies shall, in the course of computerization of the insurance funds utilization business, formulate strict administrative measures regarding authorization, responsibility of various positions, separation of the internal and external networks, and security precaution, etc.

Full consideration shall be given to safety, reliability, stability and extensibility of software utilization. The software shall be equipped with such functions as identity verification, control of visits, recovery from failure, safety protection, and checks and balances.

The passwords and codes of the database and operating systems shall be administered by different personnel respectively, and there shall be strict control measures on the use and amendment of passwords.

Article 49: Strict management of the information data relating to utilization of insurance funds shall be implemented to ensure the safety, truthfulness and completeness of the information data, and the prompt and accurate transfer of such information data to each functional department such as the accounting department. A strict authorization procedure for amendment of the computer transaction data shall be followed, and a periodic system of inspection on computer information data shall be adhered to.

The comprehensiveness of the log of information system relating to the utilization of insurance funds shall be guaranteed so as to ensure that all amendments are completely recorded, and the function of audit tracing is activated.

The log of information systems for the utilization of insurance funds shall be kept for not less than 15 years.

Article 50: The system of timely storage and backup of computer information data and logs relating to the utilization of insurance funds shall be established, and the backup copies of important data shall be placed in different locations and kept for a long term. Contingency plans for the information security of the utilization of insurance funds shall be formulated and subject to periodic amendments and rehearsals, so as to prevent the failures of electronic equipment, communications, electricity supply, business processing systems, etc. from making the normal operation of investment and transaction activities impossible, and to prevent the risks of loss of important information or data incurred by force majeure events such as earthquakes and fires.

Section Six: Accounting Management

Article 51: Insurance companies and insurance asset management companies shall, in accordance with the relevant state laws and regulations such as the PRC Accounting Law, Financial Enterprise Accounting System, Insurance Company Accounting System, Insurance Company Financial System, etc., formulate the corresponding financial accounting system, the operational flow of accounting work and work manuals for various accounting positions, strengthen basic accounting work, and improve the quality of accounting information.

Article 52: Accounting of assets entrusted to an insurance asset management company for management shall be independent from the accounting of its own assets, and there shall be no overlapping of personnel between the corporate accounting positions in an insurance asset management company and positions for accounting of the assets entrusted to the company.

Article 53: Accounting of insurance companies and insurance asset management companies relating to the utilization of insurance funds shall comply with provisions, and be timely, accurate and complete, and any amendment to the accounting policy shall be subject to the approval of the board of directors so as to ensure the consistency thereof.

Article 54: Insurance companies and insurance asset management companies shall, on the basis of division of labour according to positions, clarify the duties of various accounting positions, and for positions where mutual supervision is necessary, the whole process shall not be under the sole control of an individual.

Article 55: Insurance companies and insurance asset management companies shall ensure the normal running of their accounting systems by the adoption of the following accounting control measures:

(1) establish a documentation system through a series of management systems such as documentation design, recording, delivery and filing, etc., so as to ensure that the utilization of insurance funds is correctly recorded;

(2) establish financial organization and financial management systems, correctly set up the account books, and effectively control bookkeeping procedures;

(3) establish a system of accounting review, and prevent the occurrence of accounting errors by accounting review and business review.

Article 56: Insurance companies and insurance asset management companies shall adopt rational methods of appraisal and scientific appraisal procedures, in order to reflect the fair value of the marketable securities invested by insurance funds as at the time of appraisal.

Article 57: Insurance companies shall regulate the settlement and clearing procedures for the utilization of insurance funds, and promptly complete the settlement.

Article 58: Insurance companies and insurance asset management companies shall adopt such measures as physical stocktaking, and conduct periodic checks on cash, bank deposits, various types of marketable securities and other investment assets, so as to ensure that the accounting records are in line with the actual circumstances.

Article 59: Insurance companies and insurance asset management companies shall formulate sound systems for keeping accounting files and handover of financial matters. Finance departments shall properly keep important documents such as test keys, seals for business purposes and cheques, etc. as well as accounting files, and follow strict procedures regarding the exchange of accounting files for review, so as to prevent any damage, loss or leakage of accounting data.

Article 60: Insurance companies and insurance asset management companies shall establish reporting systems of financial information regarding the utilization of insurance funds so as to truthfully, accurately, objectively and comprehensively reflect the financial conditions and business performance of the utilization of insurance funds, and timely prepare and submit the financial statements and reports relating to the utilization of insurance funds to the CIRC in accordance with the requirements of the CIRC.

Section Seven: Human Resources Management

Article 61: Insurance companies and insurance asset management companies shall establish effective human resource management systems and formulate a strict code of practice. Management personnel responsible for the utilization of insurance funds at all levels shall be equipped with a sufficient degree of awareness on risk control and the professional conduct and competence commensurate with their position requirements.

Article 62: When employing professional personnel responsible for insurance funds utilization, insurance companies and insurance asset management companies shall pay close attention to the personnel's record of trustworthiness, and require them to give undertakings as to their trustworthiness and confidentiality in a proper manner, so as to ensure that they have the professional competence and ethical standards commensurate with their business and position requirements.

Article 63: When employing professional personnel responsible for insurance funds utilization, insurance companies and insurance asset management companies shall not employ those who have received criminal penalties, or those who have received administrative penalties as a result of engaging in economic activities, or persons who are deemed as prohibited from market entry by financial regulatory authority.

Article 64: Personnel from department of funds utilization of insurance companies and insurance asset management companies shall not concurrently hold positions in the information department, finance department, risk management or audit department.

Article 65: Insurance companies and insurance asset management companies shall establish rational and effective incentive and restraint mechanisms and strict accountability systems.

Article 66: Mandatory leave systems shall be imposed on persons in charge of the department of funds utilization of insurance companies and senior management personnel and personnel in important positions within insurance asset management companies.

Article 67: Insurance companies and insurance asset management companies shall establish systems for annual work report and systems for periodic conversation for senior management personnel responsible for utilization of insurance funds and personnel in important positions.

Article 68: Insurance companies and insurance asset management companies shall establish audit systems for the leaving of senior management personnel responsible for utilization of insurance funds and personnel in important positions from their office. The leaving from their office of persons in charge of the department of funds utilization of insurance companies, or senior management personnel of insurance asset management companies, shall be timely reported to the CIRC stating the reasons therefor.

PART FIVE: INSPECTION, SUPERVISION AND APPRAISAL

Article 69: Insurance companies shall have a department, which is independent from the department of funds utilization, responsible for the inspection, appraisal and report of the implementation of risk control of the utilization of insurance funds.

Insurance asset management companies shall have a department, which is independent from the department of investment operation, responsible for the inspection, appraisal and report of the utilization of insurance funds entrusted to them for management and of the utilization of their own funds.

Insurance companies and insurance asset management companies shall carry out comprehensive and systematic internal inspections on the utilization of insurance funds at least once a year. The results of supervision and inspection regarding the risk control of the utilization of insurance funds shall be reported to the board of directors.

Article 70: The board of directors and the management of insurance companies and insurance asset management companies shall pay great attention to and support the supervision and inspection work on the risk control of the utilization of insurance funds, and guarantee the independence and authority of such supervision and inspection work. Liability shall be pursued for the related departments and personnel that practise fraud or violate laws, regulations or the risk control system.

Article 71: Where an insurance company entrusts its insurance funds to an insurance asset management company for management, the insurance company may delegate supervisors to the insurance asset management company that is entrusted for management. Such supervisors shall, on behalf of the entrusting party, supervise the implementation in performing the agreement for entrustment of asset management by the insurance asset management company, but shall not interfere with the normal operation of the insurance asset management company.

Article 72: Insurance companies and insurance asset management companies shall establish and improve the mechanisms for correcting and handling the defects of risk control of the utilization of insurance funds, propose rectification opinions and corrective measures based on the results of inspection and appraisal regarding the risk control of the utilization of insurance funds, and carry out follow-up inspections regarding the implementation thereof.

Article 73: Insurance companies shall submit an Assets and Liabilities Matching Report to the CIRC every year. The assets and liabilities matching report shall include such contents as strategic allocation, gap management, scenario analysis and stress testing. In case of any adjustments or alterations to the report, such adjustments and alterations shall be reported within 10 working days from the date of the resolution by the board of directors.

Article 74: Insurance companies and insurance asset management companies shall submit to the CIRC the text of the risk control system for funds utilization, agreement for entrustment of asset management, custodianship agreement and relevant supervision and inspection reports regarding risk control of the utilization of insurance funds.

Article 75: The CIRC shall carry out dynamic regulation on the utilization of insurance funds by insurance companies and insurance asset management companies, and all companies shall connect the relevant data to the CIRC's dynamic regulatory system according to the CIRC's requirements.

Article 76: The CIRC may carry out inspection, supervision and appraisal on the construction and implementation regarding the risk control of the utilization of insurance funds by insurance companies and insurance asset management companies. It may also entrust professional intermediaries to carry out appraisal on the risk control system for different companies.

Article 77: The CIRC will regard the establishment of risk control of the utilization of insurance funds as an important appraisal index and condition in determining the business scope for funds utilization of insurance companies and insurance asset management companies and in rating insurance companies and insurance asset management companies.

Article 78: The CIRC may, through appropriate means, disclose to the public the inspection and appraisal on the risk control of insurance companies and insurance asset management companies.

PART SIX: SUPPLEMENTARY PROVISIONS

Article 79: The CIRC shall be responsible for the interpretation and amendment of the Guidelines.

Article 80: These Guidelines shall be effective as of June 1 2004.

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