On 19th May 2020, China's Banking & Insurance Regulatory Commission ('CBIRC') publicly released its Regulatory Measures for Credit & Guarantee Insurance (the 'Measures'). The Measures amend an earlier version of related measures, and the new Measures came into force upon the date of release (19th May 2020).
The Measures comprise five chapters, containing thirty-five articles, the key ones of which are:
1. The Measures draw key lines of distinction between how certain types of credit and guarantee insurance (collectively 'Credit-Guarantee Insurance') are to be regulated. For example, in respect of the provision of Credit-Guarantee Insurance underwriting the performance of lending and financial leasing contracts (collectively 'Financial Contracts'), the underwriting insurer ('Insurer') must satisfy all the following criteria – the Insurer must have (i) a core solvency ratio during the prior two full quarters which was at all times 75% or better, and its comprehensive solvency ratio must have been 150% or better; (ii) an internally established, dedicated, Credit-Guarantee Insurance department or division; (iii) a dedicated process-management system which system reviews pre-coverage risk and monitors post-coverage developments; (iv) a risk management process to review and assess, on an individual basis, those obligors ('Obligor') who are parties to underlying Financial Contracts, and must ensure these Obligor details are registered with the People's Bank of China's credit monitoring platform; and (v) sound and robust management systems and processes, generally.
2. An Insurer's total and retained exposure, at any time, to all its underwritten of Credit-Guarantee policies must not exceed ten times such Insurer's net asset value as at the end of the immediately prior quarter, and an Insurer's retained exposure to any single underwritten Obligor must never exceed 5% (five percent) of the Insurer's net assets as at the end of the immediately prior quarter.
3. Any Insurer which is not otherwise authorised as a specialty Credit-Guarantee Insurer (non-Specialty Insurer) must not retain exposure to financial Credit-Guarantee Insurance risk unless the total and retained exposure of such risk is less than four times such non-Specialty Insurer's net asset value as at the end of the immediately prior quarter, and such non-Specialty Insurer's retained exposure to any single Obligor under a policy of Credit-Guarantee Insurance must not exceed 1% (one percent) of such non-Specialty Insurer's net asset value as at the end of the immediately preceding quarter.
4. An Insurer must not underwrite any of the following Credit-Guarantee risks in respect of – (i) non-publicly issued securities; (ii) publicly-issued securities, where the credit-rating of such issuer is less than AA+ (waivers to this restriction are available to Specialty Insurers); (iii) arrangements which involve any change in and/or transfer from the underlying, original, Obligor; (iv) non-bank asset securitization issuance; (v) financial derivatives; (vi) financial arrangements or involvement with an Insurer's parent shareholder or controlling shareholder or subsidiary or affiliate; and (vii) any other underwriting activity otherwise prohibited by CBIRC from time to time.
5. The Measures expand the scope of regulated insurance products by including short-term export credit insurance as a product regulated by these Measures.
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