2018.01.24
Joline Chen
To further prevent insurance fund risks and deepen reforms, improve the administrative and supervisory mechanisms for utilizing insurance funds, and enhance the capability of the insurance industry to serve the real economy, the China Insurance Regulatory Commission (the “CIRC”) amended the Interim Measures for the Administration of the Utilization of Insurance Funds by promulgating the Measures for the Administration of the Utilization of Insurance Funds (hereinafter, the “Administrative Measures), which went into effect on April 1, 2018. The Administrative Measures are highlighted below:
1. The main forms of investing insurance funds are clarified, including the scope and modes of fund utilization. Insurance funds may only be used for securities such as bank deposits, purchases and sales of bonds, stocks, shares of securities investment funds, as well as investment in real estate, equity and other forms of utilization prescribed by the State Council. The Administrative Measures also enumerate the relevant provisions and restrictions on the utilization of funds. Insurance group (holding) companies and insurance companies are to select professional institutions, such as qualified commercial banks, to for third-party custody and supervision in the utilization of insurance funds, and based on the investment management capabilities and risk management capabilities, such companies can invest on their own or entrust a qualified investment manager to invest in accordance with relevant regulatory requirements.
2. Specification of the decision-making and operating mechanisms for the utilization of insurance funds, including the organizational structure, responsibilities and the fund utilization process. The utilization of insurance funds is to be governed by a system where the board of directors shall be held accountable. Insurance group (holding) companies and insurance companies shall set up a dedicated insurance asset management department. An insurance asset management institution shall set up a chief risk officer responsible for organizing and directing the risk management of the institution. Insurance group (holding) companies and insurance companies should establish a robust management system with internal control mechanisms, a specialized analysis platform, and an information management system for the utilization of insurance funds so as to provide a decision-making basis for such utilization and to ensure that risk conditions are grasped in real time.
3. Risk management mechanisms are enhanced. Insurance group (holding) companies and insurance companies should establish a comprehensive risk management organization system and its operating mechanisms to manage and control asset-liability mismatch risks, liquidity risks, market risks and credit risks, strengthen the management of interbank lending, bond repurchase and margin trading, as well as establish a risk owner system to clearly identify the corresponding risk owners.
4. The regulator’s supervision and administration over insurance institutions and relevant parties are clarified. The CIRC shall classify, continuously supervise and dynamically assess the utilization of insurance funds by insurance groups (holding) companies and insurance companies according to their corporate capabilities. Major equity investments by insurance groups (holding) companies and insurance companies shall be reported to the CIRC for approval. The senior management in charge of investments, and the directors, supervisors and senior management of an insurance asset management company shall obtain the employment qualifications required by the CIRC before assuming their positions, and the employer institution shall report to the CIRC within ten business days after the appointment. In case of violations, the CIRC may impose administrative penalties such as imposing a fine, restricting the scope of business, enjoining taking on new business, or revoking business licenses in accordance with law. The relevant responsible persons may also be subject to administrative penalties such as warnings, fines, revocation of qualifications, and ban from the insurance industry, pursuant to law. If an administrative penalty is imposed, the insurance group (controlling) company or insurance company shall go through its internal mechanisms in sorting out the responsibility among the relevant responsible persons.