A draft version of Notice on Issues regarding Reinsurance
Transactions between Foreign-invested Insurance Companies and their
Affiliated Companies ("Draft
Notice") was released by the China Insurance
Regulatory Commission ("CIRC") on 14
December 2012 for public comment. The Draft Notice provides that it
will also apply to the retrocession business.
Under the current regulatory requirements of the CIRC, a
foreign-invested insurance company ("Foreign-Invested
Insurer") must apply to the CIRC for pre-approval
before it engages in any reinsurance business with any of its
affiliated companies ("Affiliates"). The
Affiliates have to meet various requirements imposed by the CIRC
such as the financial strength ratings, paid-up capital etc. The
Draft Notice sets out the new rules for Foreign-Invested Insurers
to apply for such a pre-approval and imposes new requirements for
the Affiliates to qualify.
Under the current rules, an Affiliate who accepts a reinsurance
risk is required to have no record of any major violation of law in
the previous two years prior to the inception date of the
reinsurance contract in question. The Draft Notice has extended
this period to three years.
In addition to the specific financial strength ratings required
for the Affiliates, the Draft Notice also provides that the
Affiliate must have net profit for the prior overall three-year
period. The cash flow of the Affiliate shall be stable without any
abnormal fluctuation. However, it does not go on to deal with what
may constitute an "abnormal fluctuation" situation.
Impact on profits of foreign-invested insurers
The Draft Notice also adds some new requirements such that the
underwriting profits and net profits of a Foreign-Invested Insurer
not be significantly reduced due to the reason of the
reinsurance arrangements with its Affiliates. The CIRC may exert
discretion to ask for explanation in the case of drop in
Disclosure of information
The Draft Notice also requires the Foreign-Invested Insurer to
post the relevant reports/forms in relation to its affiliated
reinsurance arrangements on its official website for at least 5
years as well as newspapers designated by the CIRC.
The Draft Notice is no doubt another effort made by the CIRC to
enhance the security of reinsurance business. On the other hand, it
also appears to reaffirm the CIRC's position that
Foreign-Invested Insurers shall not transfer underwriting profits
by way of affiliated reinsurance transactions.
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.
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The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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