Provisions for the Administration of the Solvency of Insurance Companies

For the purposes of these Provisions, the term “solvency” of an insurance company means the capacity of an insurance company to discharge its debts.

Article 3: An insurance company shall have capital appropriate to its risks and the scale of its business and ensure that its solvency adequacy ratio is not less than 100%.

The term “solvency adequacy ratio”, which is equivalent to capital adequacy ratio, means the ratio between an insurance company's actual capital and minimum capital.

Article 4: An insurance company shall establish a solvency management system, strengthen capital restraint and ensure adequate solvency.

The board of directors and management of an insurance company shall be responsible for management of the solvency of the company. The management of the branch of a foreign insurance company shall be responsible for management of the solvency of the company. Insurance companies and branches of foreign insurance companies shall designate a member of their senior management personnel to be responsible for specific matters relating to the management of the solvency of the company.

Article 5: The China Insurance Regulatory Commission (CIRC) shall establish dynamic solvency regulatory standards and a regulatory mechanism based on risks, conduct comprehensive assessments and monitoring inspections of the solvency of insurance companies and take regulatory measures in accordance with the law.

PART TWO: SOLVENCY ASSESSMENTS

Article 6: An insurance company shall carry out regular solvency assessments in accordance with the rules for the preparation of solvency reports by insurance companies formulated by the CIRC, calculate its minimum capital and actual capital and carry out dynamic solvency tests.

An insurance company shall assess its solvency on the basis of its risks.

Article 7: The term “minimum capital of an insurance company” means the amount of capital that an insurance company is required to have in accordance with CIRC provisions in order to counter the adverse impact of risks such as asset risks and underwriting risks on its solvency.

Article 8: The term “actual capital” of an insurance company means the difference between its admissible assets and ranking liabilities.

Admissible assets are the assets confirmed by an insurance company in accordance with CIRC provisions when assessing its solvency. Admissible assets are subject to the enumerative method.

Ranking liabilities are the liabilities confirmed by an insurance company in accordance with CIRC provisions when assessing its solvency.

Article 9: An insurance company shall conduct dynamic solvency tests in accordance with CIRC provisions and forecast and evaluate its solvency trend in light of different circumstances for future specified periods of time.

Article 10: A foreign insurance company that has established more than one branch in China shall assess the overall solvency of all of its branches and sub-branches in China in a consolidated manner.

PART THREE: SOLVENCY REPORTS

Article 11: An insurance company shall prepare and submit solvency reports in accordance with the rules for the preparation of solvency reports by insurance companies formulated by the CIRC and relevant provisions and ensure that the information in such reports is true, accurate, complete and compliant.

Insurance company solvency reports include annual reports, quarterly reports and ad hoc reports.

Article 12: The board of directors and management of an insurance company shall be responsible for the truthfulness, accuracy, completeness and compliance of the contents of solvency reports.

Article 13: An insurance company shall, in accordance with CIRC provisions, submit its audited and board approved annual solvency report after the end of each financial year.

Article 14: The annual solvency report of an insurance company shall include the following:

(1) a statement by the board of directors and management;

(2) the independent opinion of an external institution;

(3) basic particulars;

(4) the discussion and analysis of management;

(5) an internal risk management statement;

(6) minimum capital;

(7) actual capital; and

(8) a dynamic solvency test;

Article 15: An insurance company shall, in accordance with CIRC provisions, submit a quarterly solvency report after the end of each quarter.

Article 16: If at any time outside a regular reporting period an insurance company's solvency becomes inadequate, the company's board of directors and management shall report the same to the CIRC within five working days from the date of discovering the same and take effective measures to improve the company's solvency.

Article 17: If any of the following events that have a material adverse impact on the solvency of an insurance company occurs, it shall report the same to the CIRC within five working days from the date of the occurrence thereof:

(1) a material investment loss;

(2) a material settlement, large surrender or involvement in a material lawsuit;

(3) a subsidiary or joint venture faces a financial crisis or is taken over by the financial regulator;

(4) the head office of a branch of a foreign insurance company is the subject of administrative penalties, has regulatory measures imposed or applies for bankruptcy protection due to a solvency problem;

(5) its parent company faces a financial crisis or is taken over by the financial regulator;

(6) major assets are frozen by the judicial authorities or it is the subject of major administrative penalties imposed by another administrative authority; or

(7) another event that has a material adverse impact on its solvency occurs.

Article 18: A foreign insurance company with more than one branch in China shall designate one such branch as its main reporting institution, which shall be responsible for performing the reporting obligations specified herein.

Article 19: If an offshore insurance company invested in and established by an insurance company submits a solvency report prepared in accordance with the local regulatory rules to the insurance regulator of the host country, it shall additionally submit such report to the CIRC.

Article 20: The CIRC may, based on regulatory requirements, revise the frequency at which insurance companies are required to submit solvency reports.

Article 21: insurance companies shall publicly disclose their solvency position in accordance with state laws, administrative regulations and CIRC provisions.

PART FOUR: SOLVENCY MANAGEMENT

Article 22: An insurance company's comprehensive risk management and the factors that have an effect on its solvency shall be incorporated into its internal solvency management system. An insurance company's solvency management system shall cover:

(1) asset management;

(2) liability management;

(3) asset-liability matching management; and

(4) capital management.

Article 23: An insurance company shall establish an effective asset management system and mechanism to identify, guard against and mitigate asset risks such as concentration risks, credit risks, liquidity risks and market risks principally by:

(1) strengthening the monitoring of fund flows at stages such as underwriting, cession, settlement, investment and financing;

(2) establishing an effective fund application management mechanism and, based on the nature of its investment business and internal organisational structure, establishing an investment management mechanism under which decision making, operation, custody and assessment are mutually separated and mutually constrain each other;

(3) strengthening the equity management, risk management and internal affiliated transaction management of subsidiaries, joint ventures and jointly operated enterprises, and monitoring risk transfer and transmission within the group;

(4) strengthening the management of physical assets, such as fixed assets and establishing an effective asset separation and authorisation system; and

(5) establishing a credit risk management system and mechanism and strengthening the management of assets that are relatively exposed to credit risks, such as debt investments and its reinsurance receivable reserve.

Article 24: An insurance company shall identify, guard against and mitigate liability risks such as underwriting risks, security provision risks and financing risks principally by:

(1) clarifying the control procedures at key control stages such as pricing, sale, acceptance, claim verification and cession so as to reduce underwriting risks;

(2) establishing and enhancing a reserve liability assessment system and ensuring the accuracy and adequacy of reserve liability assessments;

(3) establishing a financing management system and mechanism and clarifying the risk control procedures for the financing stages; and

(4) tightening the security provision procedures for businesses other than insurance business, and, while abiding by laws, administrative regulations and relevant CIRC provisions, taking prudent risk control measures based on the creditworthiness and solvency of the security receiver and carrying out follow-up monitoring in a timely manner.

Article 25: An insurance company shall strengthen its asset-liability management, establish an asset-liability management system and mechanism and, in a timely manner, identify, guard against and mitigate the risks of mismatches between assets and liabilities in terms of term, interest rate, currency, etc. and other risks.

Article 26: An insurance company shall establish and enhance a capital management system, continuously improve corporate governance and, in a timely manner, identify, guard against and mitigate corporate governance risks and operational risks.

Article 27: An insurance company shall establish a capital constraint mechanism and, while formulating development strategies, business plans, designing products, applying funds, etc., consider their impact on its solvency.

Article 28: An insurance company shall establish a capital supplementation mechanism that is consonant with its development strategies and business plans and maintain adequate solvency through financing and increasing its profitability.

Article 29: If an insurance company's solvency adequacy ratio is less than 150%, it shall adopt the lower of the following two options as the basis for profit distribution:

(1) its distributable profit as determined based on the enterprise accounting guidelines; or

(2) its balance of comprehensive returns as determined based on the rules for the preparation of solvency reports by insurance companies.

Article 30: An insurance company shall establish a solvency management mechanism for which its board of directors and management are responsible, and clarify the duties and authority of relevant organisations and personnel with respect to asset management, liability management, asset-liability management and capital management and the procedures and specific measures for solvency management.

Article 31: An insurance company shall establish a solvency management training system and regularly give its solvency management personnel and other relevant personnel solvency management and compliance training.

Article 32: The management of an insurance company shall regularly assess and improve the effectiveness of solvency management and report on the same to the board of directors or the shareholders' (general) meeting.

PART FIVE: SOLVENCY MONITORING

Article 33: In its monitoring inspections of the solvency of insurance companies, the CIRC shall adopt a combination of onsite and offsite monitoring.

Article 34: The CIRC shall examine the solvency reports submitted by insurance companies.

The CIRC may appoint an intermediary firm to examine the solvency reports and related information submitted by insurance companies.

Article 35: After the end of each quarter, the CIRC shall analyse the solvency of insurance companies based on the solvency reports and other information submitted by such companies.

Article 36: The CIRC shall conduct onsite inspections of the following aspects of the solvency management of insurance companies on a regular or irregular basis:

(1) the compliance and effectiveness of solvency management;

(2) the compliance and truthfulness of solvency assessment;

(3) the implementation of CIRC regulatory measures; and

(4) other aspects that the CIRC deems necessary to inspect.

Article 37: The CIRC shall divide insurance companies into the following three categories based on their solvency position, and oversee them accordingly:

(1) inadequate companies, meaning insurance companies whose solvency adequacy ratio is less than 100%;

(2) adequacy type I companies, meaning insurance companies whose solvency adequacy ratio is between 100% and 150%; and

(3) adequacy type II companies, meaning insurance companies whose solvency adequacy ratio is above 150%.

The CIRC shall not treat the results of dynamic solvency tests of insurance companies as the basis for the imposition of regulatory measures.

Article 38: The CIRC shall, depending on the circumstances, take one or more of the following regulatory measures against inadequate companies:

(1) ordering them to increase their capital or restricting their payment of dividends to shareholders;

(2) placing a cap on the remuneration and expense accounts of their directors and senior management personnel;

(3) placing restrictions on their commercial advertising;

(4) placing restrictions on their opening of new branches or sub-branches, restricting their scope of business, ordering them to suspend the launch of new business, ordering them to transfer their insurance business or ordering them to cede business;

(5) ordering them to auction assets or placing restrictions on their purchase of fixed assets;

(6) limiting their fund application channels;

(7) replacing their persons in charge and relevant management personnel;

(8) taking them over; and/or

(9) taking other regulatory measures that it deems necessary.

Article 39: The CIRC may require adequacy type I companies to provide and implement plans to prevent solvency inadequacy.

Article 40: If an adequacy type I company or adequacy type II company faces a major solvency risk, the CIRC may require it to rectify the matter or take necessary regulatory measures.

Article 41: If an insurance company fails to establish and implement a solvency management system in accordance herewith, the CIRC may require it to rectify the matter. If the circumstances are serious, it may take the appropriate regulatory measures and impose administrative penalties in accordance with the law.

Article 42: The CIRC shall assess the solvency of the branches and sub-branches in China of a foreign insurance company on a consolidated basis and the solvency regulatory measures that it takes shall apply to all of the branches and sub-branches in China.

Article 43: The agencies of the CIRC shall perform the following duties with respect to solvency monitoring as authorised by the CIRC:

(1) conducting monitoring inspections of the compliance and effectiveness of the internal risk management of the branches and sub-branches of insurance companies;

(2) conducting monitoring inspections of the completeness and truthfulness of the basic solvency regulatory data, such as financial information, of the branches and sub-branches of insurance companies;

(3) guarding against and mitigating the market act risks of the branches and sub-branches of insurance companies and preventing major market act risks from becoming solvency risks;

(4) enforcing the regulatory measures taken against insurance companies by the CIRC and ensuring that such regulatory measures are strictly implemented at the branch and sub-branch level;

(5) identifying, monitoring, guarding against and mitigating major solvency risks in their jurisdictions; and

(6) other solvency oversight duties delegated by the CIRC.

PART SIX: SUPPLEMENTARY PROVISIONS

Article 44: These Provisions shall apply to the oversight of the solvency of insurance groups. If laws, administrative regulations or the CIRC provide otherwise, such provisions shall apply.

Article 45: The CIRC is in charge of interpreting and revising these Provisions.

Article 46: These Provisions shall be effective as of September 1 2008. The Provisions for the Administration of Insurance Company Solvency Levels and Regulatory Indexes (Order of the CIRC [2003] No.1) shall be repealed simultaneously.