The CIRC released a draft version of Measures for the Administration of the Representative Offices in China of Foreign Insurance Institutions ("Draft Measures") on 31 March 2011 for public consultation. Comments are invited before 20 April 2011.
The current principal legislation relating to the representative offices of foreign insurance institutions is set out in:-
the Measures for the Administration of the Representative
Offices of Foreign Insurance Institutions in China (the
"Current Measures", which came into effect on 1
August 2006); and
the Interpretation of the CIRC on Several Issues Concerning the Application of the Measures for the Administration of the Representative Offices in China of Foreign Insurance Institutions (the "Interpretation", which came into effect on 1 December 2008).
The Draft Measures aim to incorporate the CIRC's Interpretation of the Current Measures, and also to amend and add to the Current Measures.
The main amendments and new provisions proposed in the Draft Measures are set out below for reference: -
Definition of foreign insurance intermediary institutions
The Draft Measures have specified that "foreign insurance intermediary institutions" include insurance brokers, insurance agents and insurance loss adjusters which are registered outside the territory of China.
Different requirements on total assets for foreign insurance companies and foreign insurance intermediaries
The Draft Measures have now clarified the different requirements on foreign insurance companies and foreign insurance intermediaries in relation to the investors' total assets at the year end prior to the application of a representative office. The relevant requirement is US$2 billion for foreign insurance companies and US$200 million for foreign insurance intermediaries.
Qualifications of general representatives and chief representatives
One important amendment in the Draft Measures is that, when compared with the Current Measures, higher standards (See below) have been imposed in relation to qualifications of general representatives (i.e. the principal representative of a general representative office of a foreign insurance institution. For information, an investor is allowed to convert one of its representative offices into a general representative office if it already has more than two representative offices in China so that this general representative office becomes the principal representative office of the investor in China) and chief representatives (i.e. the principal representative of a representative office).
- A general representative or a chief representative is required to hold at least a bachelors' degree under the Draft Measures, while he is only required to hold a junior college diploma or above in the Current Measures.
- The Draft Measures also require the general representative candidate or chief representative candidate to have no less than 8 years' work experience in the insurance industry. The Current Measures only require 8 years' work experience for a general representative, and 5 years' work experience for a chief representative, and such work experience does not have to be insurance-related.
- The Draft Measures require a general representative or chief representative must have at least 2 years' work experience in a management position of an insurance (intermediary) company and other work experience which needs to be essential to prove that he has the relevant knowledge and practical experience to perform his duties. Such requirements are not included in the Current Measures.
Supervisory powers of CIRC
The Draft Measures have given more supervisory power to the CIRC's regional offices in relation to the supervision of the representative offices of foreign insurance institutions. The Draft Measures state that either the CIRC or its regional offices may require the general representative or chief representative to explain further the annual report submitted by the (general) representative office. Under the Current Measures, only the CIRC (instead of its regional offices) can request a general or chief representative to do so.
The Draft Measures have also added provisions in relation to the CIRC's routine and annual inspections of daily operation of a (general) representative office. Such provisions are not included in the Current Measures.
Time frame for reporting withdrawal
The Current Measures require a report to be submitted to the CIRC within 20 days from the date on which the investor withdraws its representative office in China. In the Draft Measures, this time frame has been shortened to 10 days. Further, the Draft Measures also require the investor to submit a separate report to CIRC at an earlier stage within 10 days from the date on which the decision of withdrawal is made. Such requirement is not included in the Current Measures.
The Draft Measures have added many provisions regarding legal consequences of, and liability for, a representative office for any operational non-compliance. For example, for the setting up of a representative office without the CIRC's approval, the fine can be up to RMB300,000 ($45,000). If the representative office is involved in any income-generating activities, the CIRC may impose a fine of up to five times of the illegal gains made as a result. CIRC may also order the closing down of the representative office. The CIRC can also punish any individual staff member of a representative office who is directly responsible for the non-compliance. The punishment may range from a warning to a fine of up to RMB30,000 ($4,500).
It appears that the CIRC is aiming to increase the entry thresholds for setting up a representative office of foreign insurance institution (including foreign insurance intermediaries), and to strengthen the daily supervision of such a representative office. For example, the higher qualification standards on chief representatives will no doubt add to the pressure of foreign investors to find employees with the right qualifications and experience in the market.
Although further amendments to the Draft Measures are very likely to be made after the public consultation has ended, foreign insurance institutions considering their long term strategies in China may wish to set up its representative office in China before the introduction of the new legislation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.