Implementing Rules for the Tentative Measures for the Administration of Overseas Investment of Insurance Capital

Article 2: Parties involved in the investment of insurance capital overseas shall, in accordance with the Measures and these Rules, fully study and assess the political, economic, legal and other risks of the countries or regions in which they propose to invest and carry out such overseas investment prudently.

Article 3: The China Insurance Regulatory Commission (CIRC) shall carry out, in accordance with the law, ongoing assessments and regulation of the management capabilities of parties involved in the investment of insurance capital overseas.

Part Two: Qualification conditions

Article 4: A principal shall, in addition to being in compliance with Article 9 of the Measures, satisfy the following conditions:

(1) having overseas investment-related positions, and not fewer than three overseas investment professionals, of whom not fewer than two persons have at least three years of foreign stock market investment management experience;

(2) at the time of the investment, having a solvency adequacy ratio of not less than 120% as at the end of the previous quarter; and

(3) if it is investing in the equity of unlisted enterprises, immovable property or a related financial product overseas, having management capabilities complying with relevant provisions.

Article 5: A trustee in China, in addition to being in compliance with Article 10 of the Measures, shall satisfy the following conditions:

(1) having at least three years of insurance asset management experience;

(2) having assets of no less than Rmb10 billion under its management during the most recent financial year; and

(3) having no fewer than five overseas investment professionals, of whom no fewer than three persons have at least five years of foreign stock market investment management experience and not fewer than two persons have at least three years of foreign stock market investment management experience.

A domestic trustee shall be restricted to investing insurance capital under its management in the Hong Kong market.

Article 6: An overseas trustee, in addition to being in compliance with Article 11 of the Measures, shall satisfy the following conditions:

(1) having at least five years of international asset management experience and at least three years of old-age pension or insurance asset management experience;

(2) having paid-in capital or net assets of not less than US$30 million or the equivalent in a freely convertible currency during the most recent financial year;

(3) having an average of not less than US$30 billion, or the equivalent in a freely convertible currency, in assets under its management during the most recent year; and the assets of non-affiliated parties under its management accounting for not less than 50% of the total assets under its management, or not less than US$30 billion or the equivalent in a freely convertible currency;

(4) the investment team satisfying the professional qualification requirements of the country or region where it is located and having on average at least five years of experience in the industry, and the principal investment management personnel therein having at least eight years of experience in the industry; and

(5) having a good historical investment performance.

The assets under the management of the trustee's parent or the asset management institution in the trustee's group may be combined for calculation purposes, but the assets under the management of investment consultants, investment banks, etc. or those with which investment consultants, investment banks, etc. have a connection are excluded.

A trustee may be exempted from the provision on the assets under its management of Item (3) of the first paragraph if it engages in dedicated asset management and satisfies the following conditions:

(1) having assets under its management of at least US$5 billion or the equivalent in a freely convertible currency;

(2) the dedicated assets under its management accounting for not less than 70% of the total assets under its management; and

(3) having a professional reputation and appraisal publicly recognised in the market, and its management team having outstanding performance in the dedicated asset management sector.

If the asset management institution established in Hong Kong by an insurance institution in China fails to satisfy the provisions of this Article, the domestic insurance capital that it has been engaged to manage may only be invested in the Hong Kong market.

Article 7: If insurance capital are invested in an equity investment fund, the equity investment institution that promoted and manages the fund shall satisfy the following conditions:

(1) having paid-in capital or net assets of not less than US$15 million or the equivalent in a freely convertible currency; and

(2) having total assets that have been under its management of not less than US$1 billion or the equivalent in a freely convertible currency, and having good historical performance and a good business reputation.

Article 8: A custodian, in addition to being in compliance with the conditions set forth in Article 12 of the Measures, shall satisfy the following conditions:

(1) having paid-in capital or net assets of not less than Rmb30 billion and assets in its custody of not less than Rmb200 billion as at the end of the most recent financial year;

(2) if the custodian is a wholly foreign-owned bank or a branch of a foreign bank, and its parent/head office satisfies the conditions set forth in Item (1) and can bear joint and several liability for the custodian's performance of the custody agreement, the custodian's paid-in capital or net assets and the assets in its custody may be calculated based on those of its parent/head office;

(3) its long-term credit rating being at least A grade or the equivalent of A grade; the capital adequacy ratio, core capital adequacy ratio and credit rating of a branch of a foreign bank may be calculated based on those of its parent/head office; and

(4) having not fewer than six professionals engaged in insurance asset custody business.

Article 9: If a commercial bank has any of the following relationships with a principal, it may not serve as the custodian or custodial agent of the principal:

(1) either party directly or indirectly holds more than 10% of the shares of the other party;

(2) a third party directly or indirectly holds more than 10% of the shares of both parties; or

(3) another affiliated relationship as determined by the CIRC applies.

If a custodian (or custodial agent) has any of the relationships set forth in the preceding paragraph with a trustee, it shall establish an effective risk isolation mechanism, and may not engage in insider trading or the funnelling of benefits.

Article 10: When a party involved in the investment of insurance capital overseas applies to engage in business, it shall report to the CIRC and undertake to submit itself to inquiries by the CIRC about the investment of insurance capital overseas. When a principal replaces its trustee or custodian, it shall submit materials anew.

Part Three: Code of investment

Article 11: For the investment of insurance capital overseas, the financial market of a country or region listed in Appendix 1 shall be selected and the investment shall be made in the following products:

(1) money market products

including money market instruments or products such as commercial paper with a term not exceeding one year, banker's bills, negotiable certificates of deposit, reverse repos, short-term government bonds and overnight interbank loans;

the issuer of a money market instrument (including reverse repos used as mortgaged securities) shall have a credit rating of at least A grade or the equivalent of A grade;

(2) fixed return products

including bank deposits, government bonds, government-backed bonds, supra-national bonds, corporate bonds, convertible bonds and other such fixed return products;

bonds shall be denominated in a major international currency, and the issuer and liability shall be rated BBB or the equivalent of BBB by an internationally recognised ratings agency. If a bond, in accordance with provisions, is exempt from credit rating requirements, the issuer shall have a credit rating that is not lower than the rating requirement for the bond. PRC government bonds issued overseas are not subject to credit rating restrictions. A convertible bond shall be one that is listed and traded on the main board of a stock exchange in a country or region listed in Appendix 1;

(3) equity

including common shares, preferential shares, global depository receipts, American depositary receipts, equity of unlisted enterprises and other such equity instruments or products;

a stock or depository receipt shall be one that is listed and traded on the main board of a stock exchange in a country or region listed in Appendix 1;

direct investments in the equity of unlisted enterprises shall be limited to the equity of financial, pension, medical, energy, resource, automotive service and modern agricultural enterprises;

(4) immovable property

direct investments in immovable property shall be limited to mature commercial immovable property and office immovable property that generate stable returns and that are located in the core areas of major cities in the developed markets listed in Appendix 1.

Article 12: Overseas funds in which insurance capital are invested shall satisfy the following conditions:

(1) securities investment fund

approved or registered by the securities regulator of a country or region listed in Appendix 1; the fund manager being in compliance with Article 6; having a traceable historical performance of not fewer than three years; having a simple and clear structure and having underlying assets that are clear and complying with Items (1), (2) and (3) of Article 11; a money market fund shall additionally have a rating of AAA or the equivalent of AAA;

(2) equity investment fund

the investment target being in its growth period, mature period or having a relatively high acquisition value, and not being restricted by the countries and regions listed in Appendix 1; having subscription moneys of no less than US$300 million or the equivalent in a freely convertible currency and paid-in funds in place proportional to the funds subscribed for;

having at least 10 professionals with equity investment and related experience; among the senior management personnel, having no fewer than two persons with at least eight years of relevant experience, having complete fund offering, management and divestment experience and having not fewer than five projects that were directed and divested from by them (funds of funds excepted); having no fewer than three of its key professionals having worked together for at least three years; having a sound governance structure, an effective incentive and restraint mechanism and benefit protection mechanism; having key personnel terms that can ensure the exclusive orientation of the management team;

insurance capital may be invested in funds of funds the targets of which are equity investment funds complying with the preceding paragraph. The trading structure of a fund of funds shall be simple and clear and may not include other funds of funds;

a financial institution or a subsidiary thereof may not actually control the management and operation of an equity investment fund in which insurance capital are invested, nor may it hold a general partner equity interest therein;

(3) REITs

listed and traded on an exchange in a country or region listed in Appendix 1.

Article 13: If two or more ratings agencies have rated an investment target during the same accounting period, its credit rating shall be confirmed by the principle of whichever is lower.

Article 14: The balance of the overseas investments of an insurance institution shall not exceed 15% of its total assets as at the end of the previous year and the balance of investments in the new markets listed in Appendix 1 shall not exceed 10% of its total assets as at the end of the previous year.

An insurance institution shall calculate together the percentages of its domestic and overseas investments of various types, and the percentages invested in the various items shall be handled with reference to identical products invested in domestically.

Article 15: In the overseas investment of insurance capital, short-term financing loans and borrowings shall be controlled and comply with the following provisions:

(1) funds tied up in reverse repos and overnight interbank loans shall not exceed 1% of the total assets as at the end of the previous year; and

(2) proceeds of interbank borrowings for transaction settlement purposes shall not exceed 1% of the total assets as at the end of the previous year and the term of such borrowings shall not exceed five working days.

Article 16: The acts set forth below may not be committed in the course of the overseas investment of insurance capital:

(1) investment in physical commodities, precious metals or precious metal certificates, or commodity derivatives;

(2) utilising securities business firm financing to purchase securities and take part in non-asset backed short selling; or

(3) borrowing funds in any manner other than interbank borrowing for transaction settlement purposes.

Part Four: Risk control

Article 17: A principal shall establish an information management system that covers both domestic and foreign markets and monitor metrics such as investment markets, investment products, investment percentages, transaction counterparty concentration and derivative risk exposure in real time to ensure that it operates compliantly and lawfully.

Article 18: If a principal's solvency adequacy ratio as at the end of the previous quarter is lower than that specified in provisions, it shall revise its overseas investment strategy in a timely manner, and may not continue to invest in or increase its holding of debenture bonds, equity instruments, immovable property or related financial products.

Article 19: A principal shall itself, or engage an investment consultant to, conduct due diligence investigations of the trustee and custodian, fully apprise itself of the custodial agents selected by the custodian and pay attention to the relevant risks.

Article 20: A principal shall regularly evaluate the trustee and custodian and review the investment guidelines at least once per year in accordance with the Measures, these Rules and the investment management agreement.

Article 21: If the trustee is to hand over insurance capital for investment management by another professional institution controlled by its parent, it shall secure the consent of the principal therefor and assume ultimate responsibility for the sub-entrustment.

Except by the method mentioned above, a trustee may not sub-entrust entrusted assets under any guise or by any means.

Article 22: If the investment act of a trustee ceases to be in compliance with the Measures and these Rules due to factors such as market fluctuations or revision of the credit rating, it shall make adjustments within three months.

Article 23: A trustee shall formulate and impose criteria for selecting transaction counterparties and have the same approved by the principal. Except in the case of delivery vs. payment transactions, a trustee shall select an organisation with a credit rating of at least A grade or the equivalent of A grade.

In keeping with the principle of the best interests of the principal, a trustee shall select a reputable overseas securities service firm that operates compliantly to carry out securities trading on its behalf, reasonably allocate insurance capital for securities trading, ensure trading quality, control trading costs and disclose to the principal the payment of business charges to the securities business firm and securities brokers or the refund name and collection and payment method.

Article 24: A custodian shall charge reasonable custodial charges based on the type and the size of the assets in its custody and the services it provides.

If, in the course of a custodial agent's performance of its duties, a loss results from the overseas investment of insurance capital due to an error on its part, negligence or other such reason, the custodian shall assume the attendant liability.

Article 25: A custodian or custodial agent shall duly keep the originals of the custodial asset ownership documents or the originals of all of the documents proving ownership, unless the laws of the place where the investment is made provide otherwise, in which case such provisions shall apply.

Article 26: The agreements executed by a principal with the trustee and custodian shall comply with regulatory requirements and general practice, be governed by the law of the People's Republic of China or the Hong Kong Special Administrative Region of China and be subject to awards of an arbitration institution of China or the Hong Kong Special Administrative Region.

A professional lawyer with a law firm who has at least three years of relevant practice experience shall issue a legal opinion in respect of the agreements mentioned in the preceding paragraph.

Article 27: Parties involved in the investment of insurance capital overseas may not engage in the funnelling of any benefits other than lawful commissions, taxes and levies, or utilise insurance capital to obtain illegitimate benefits.

Article 28: For the investment of insurance capital in immovable property and equity of unlisted enterprises overseas, reference shall be made to regulations for similar domestic products, investment shall be carried out in a compliant manner, follow-up management shall be strengthened and investment risks, operational risks and market risks shall be guarded against.

Article 29: Derivatives, such as interest rate forwards, interest rate swaps, interest rate futures, exchange rate forwards, exchange rate swaps, stock index futures and call stock index options, may be utilised to evade investment risks inherent in the investment of insurance capital overseas and the following provisions shall be complied with:

(1) speculation may not be engaged in, and the total value of the subject matter of derivative contracts may not exceed 102% of the underlying assets whose risks need to be hedged against ;

(3) the value of over-the-counter contracts shall be assessed each working day and the mark-to-market exposure to any over-the-counter transaction counterparty shall not exceed 1% of the total assets as at the end of the previous year; and

(4) an over-the-counter transaction counterparty shall have executed an ISDA Master Agreement with the trustee which shall have been approved and authorised by the principal. The listing and trading of interest rate futures, stock index futures and call stock index options shall be restricted to the exchanges listed in Appendix 2.

The investment guidelines shall expressly provide for the scope, type and risk limit requirements made in respect of derivative trading, the selection of transaction counterparties, approval of special matters, information provision and reporting systems, among other matters.

Part Five: Regulation

Article 30: A principal shall report the following matters to the CIRC in accordance with provisions:

(1) material reports: the execution of asset entrustment and management agreements and custody agreements and the execution and revision of investment guidelines shall be reported within five working days; material contingencies involving the trustee or custodian, and material contingencies involving the investment market that affect the safety of insurance assets or investment performance shall be reported within three working days, and the matters reported shall at minimum include asset preservation and risk prevention measures;

(2) quarterly reports: details of overseas investments, risk assessment reports, details of overseas investment settlement account balances and receipts and expenditures, and affiliated transactions shall be reported within 30 working days of the end of each quarter;

(3) annual reports: a report assessing the management of insurance capital by the trustee and custodian during the previous year shall be submitted by April 30 each year; and

(4) other matters as specified by the CIRC.

Article 31: An insurance institution wishing to invest in equity or immovable property overseas shall refer to relevant domestic provisions and perform its approval or reporting obligations.

Article 32: A custodian shall report the following matters to the CIRC in accordance with provisions:

(1) material reports: the replacement of an overseas custodial agent shall be reported within five working days;

(2) monthly reports: details of custody matters relating to the investment of insurance capital overseas during the month shall be reported within 10 working days of the end of each month; and

(3) annual reports: the company's financial report and internal control audit report for the previous year issued by an accounting firm shall be submitted by April 30 each year.

A trustee and custodian shall fully disclose relevant information to the principal in accordance with the relevant agreements, and the contents of such disclosure shall not be less than those specified by the relevant provisions hereof and may not contain false records, misleading statements or material omissions.

For the purposes of these Rules, the term “accounting firm” means an accounting firm with auditing experience in the relevant industry inside and outside China, with a good reputation and that is widely recognised.

Article 33: If a party involved in the investment of insurance capital overseas violates a law, administrative regulations or these Rules, the CIRC shall penalise such institution and the relevant personnel in accordance with the law.

Part Six: Supplementary provisions

Article 34: These Rules shall govern the investment of insurance capital in financial products offered overseas and denominated in renminbi , and financial instruments offered in China, denominated in renminbi or a foreign currency and the investment targets of which are overseas financial instruments or other assets.

Article 35: The CIRC is in charge of interpreting these Rules. These Rules shall be effective as of the date of issuance. Parties that engaged in the investment of insurance capital overseas before the implementation of these Rules shall bring themselves into compliance herewith within six months.

Appendix 1: COUNTRIES AND PLACES THAT MAY BE INVESTED IN

Appendix 2: FUTURES AND OPTIONS EXCHANGES

Note: An exchange established from a merger by absorption or merger by new establishment of any of the above two exchanges will be deemed as an approved exchange.