China:Regulator to amend reinsurance rules

The CBIRC has issued a draft containing proposed revisions to reinsurance regulations that were last updated in 2015.

The regulator proposes six major changes when it released on 28 May its "Regulations on the Management of Reinsurance Business (Draft for Comment)" on its official website. They are:

Insurance companies and insurance groups are to formulate reinsurance strategies so as to curb risks and promote a more orderly development of the industry.

The insurers are to spell out the purpose of the reinsurance arrangement, retention policy, reinsurance policy, risk management and control mechanism, etc.

Supervision of reinsurance business is to be tightened with detailed requirements set out relating to the concentration of reinsurance business, overseas reinsurance risks, and liquidity management.

The CBIRC aims to tighten reinsurance contract management regulations, requiring insurers to establish a reinsurance file management system, with relevant documents processed electronically in a timely manner.

The new rules would also cover the timely signing of reinsurance contracts, the settlement of reinsurance funds and reporting of receivables and payables, etc.

Direct insurance companies which carry out reinsurance business have to set up an independent reinsurance department at the head office.

Branches of insurers are barred from conducting reinsurance business. If the reinsurance premium income in the previous year exceeded CNY100m ($15.7m), the department should be manned by no less than three full-time personnel independent of the direct insurance business. If the reinsurance premium income in the previous year exceeded CNY300m, the full-time personnel in the reinsurance department shall number not less than five. Insurers are to draw up detailed annual reinsurance business development plans.

Insurers are to carefully select reinsurance counterparties and reinsurance brokers.

Insurers are to support the development of the direct insurance market. However, the regulator strictly prohibits the use of reinsurance to transfer profits and evade taxes.

When insurers conduct reinsurance transactions with related entities, they shall follow market principles to determine reinsurance prices and conditions. To this end, the CBIRC proposes to remove a restrictive clause in the 2015 set of regulations that limits the amount of insurance taken out by related parties to not more than 20% of the amount of insurance for direct business. The insurer shall disclose information on related-party reinsurance transactions.

The proposed new regulations also streamline reinsurance information reporting by insurers.

Source: Asia insurance review