Newsletter
AMENDMENT TO REGULATIONS GOVERNING FOREIGN INVEST-MENTS BY INSURANCE ENTERPRISES
On 12 March 2008, the Financial Supervisory Commission amended the Principles of Scope and Content for Insurance Enterprises Conducting Foreign Investments and renamed them as the Regulations Governing Foreign Investments by Insurance Enterprises, pursuant to Article 146-4 of the Insurance Act. The amendments are summarized as follows:
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Insurance enterprises may extend credit in foreign currencies with pledge of life insurance policies collected and paid in foreign currencies, to conduct derivatives transactions to improve investment efficiency, and to invest in foreign real estate, in order to facilitate insurance enterprises' sales of foreign-currency-denominated traditional insurance policies, to increase returns on investment, and to expand business overseas. (Article 3)
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In order to increase the investment options and the returns on investment, insurance enterprises may invest in some other types of securities but there will be certain restrictions.(Articles 5 to 10)
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Investments in foreign real estate are limited to those that are for immediate use and that are profit-making, and the total value of such investments cannot exceed 10% of the owner's equity in the insurance enterprise. Furthermore, in order to effectively monitor the use of such offshore real estate, an insurance enterprise must disclose on its website an appraisal report issued by a qualified local appraisal institute on each acquisition or disposal of foreign real estate. (Article 11)
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Insurance enterprises may not invest in any securities or derivatives issued by the Chinese government or companies or in the real estate in mainland China. (Article 12)
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As the maximum investment an insurance enterprise's foreign may make has been increased to 45% of the owner's equity under Article 146-4 of the Insurance Act, certain criteria have to be met in order to increase foreign investments to over 35% or 40% of the owner's equity. (Article 15)
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In order to effectively supervise foreign assets invested by insurance enterprises, new provisions regarding the credit rating of custodian institutions are introduced. Moreover, in order to strengthen insurance enterprises' internal control mechanisms, when the amount of an insurance enterprise's approved foreign investments reaches 35% of the owner's equity or US$1 billion, all foreign securities held by the insurance enterprise must be collectively deposited with not more than two custodian institutions, except for the investments in foreign securities or investments in foreign securities representing interest in funds through non-discretionary money trusts managed by financial institutions. (Article 16)
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In order to effectively implement risk management mechanisms, the total investment in alternative investment products of relatively high risks may not exceed 5% of an insurance enterprise's available funds, and differentiated management should apply to alternative investment products. (Article 17)