Intent Declared Summary

Since China's accession to the World Trade Organization in 2001, the Chinese insurance industry has undergone substantial reforms in terms of regulation and supervision, as reported in Xijun's 2008 study published as a part of the EU-China Trade Project. In 2001, the Asian Development Bank (ADB) advised developing a strong, risk-based insurance industry, strengthening the legal and regulatory framework, enhancing the regulator's powers, establishing an internal solvency rating system, and improving the financial fitness of insurance companies. These recommendations, per the ADB's 2001 report, if implemented, were expected to bring the supervisory framework of the insurance regulatory authority - the China Insurance Regulatory Commission (CIRC) - fully in line with best practices, including standards of the International Association of Insurance Supervisors. Based on a comprehensive legal and regulatory framework centered on solvency regulation, market conduct, and corporate governance, according to Xijun's 2008 study, the CIRC has realigned its regulatory objectives and taken a number of initiatives in the areas of on-site and off-site inspection, corrective measures and sanctions, and information disclosure and transparency. A risk prevention system has also been adopted. Further, the Insurance Law was amended in 2009 and signals an improvement in key areas of insurance regulation, viz., supervisory powers and corrective action, consumer protection, solvency, licensing, suitability of persons, investments, and insurance intermediaries, per a report on the LexisNexis website.

General Overview

Until 1998, supervision and regulation of the insurance industry in China had been conducted by the Insurance Department of the People's Bank of China (PBC), the central bank of China. In December 1998, the China Insurance Regulatory Commission (CIRC) was established as the sole insurance regulatory authority. In 2003, per information on its website, the CIRC was elevated from a semi-ministerial body to a ministerial institution authorized by and directly under the State Council. The CIRC is responsible for authorizing insurance entities, maintaining the stable operation of the insurance market, and for ensuring the insurance entities’ compliance with the relevant laws. The change of status also led to an increase in the number of supervisory staff and local offices, and an expansion of the internal organization, the CIRC website states. The CIRC is a member of the International Association of Insurance Supervisors (IAIS).

The legal framework for the insurance sector is mainly based on the Insurance Law, which was enacted in 1995. The Law was first revised in 2002 and took effect in 2003. It was amended again in February 2009 and took effect in October 2009. The February 2007 Insurance Focus from Allens Arthur Robinson had averred that the amendments would improve the diversification of investments and the business activity of insurance companies. Per an August 2009 report on the LexisNexis website, the amendments “reflect the rapid development of China’s insurance industry since China joined the World Trade Organization in 2002” and “will constitute a comprehensive reform of the present insurance law.” The five key areas of insurance regulation affected by the new law, per the website, are insurance contracts, insurance companies, insurance intermediaries, the management of insurance companies, and the supervision of the insurance industry. Based on the new Insurance Law, the CIRC proposed new regulations on insurance intermediaries in July 2009 and invited public comment on them. The regulations make capital as well as ‘fit and proper’ requirements for insurance intermediaries more stringent. The regulations also came into effect on October 1, 2009.

Since China's accession to the WTO, the Chinese insurance industry has undergone substantial reforms in the area of insurance regulation and supervision, as reported in Dr. Zhao Xijun's 2008 study published as a part of the EU-China Trade Project (EUCTP). A comprehensive legal and regulatory framework for the insurance market has also been established. The EUCTP was jointly launched in 2004 by the European Commission (EC) and the Ministry of Commerce of the People's Republic of China to support China's integration into the world trading system, and assist its institutional, policy and regulatory reform process. In 2001, the Asian Development Bank (ADB) completed a report on Capacity Building for the Insurance Sector Regulatory and Supervising System. The ADB advised developing a strong, risk-based insurance industry, strengthening the legal and regulatory framework, enhancing the regulator's powers, establishing an internal solvency rating system, and improving the financial fitness of insurance companies The recommendations, per the ADB's 2001 report, if implemented, were expected to bring the supervisory framework of the CIRC fully in line with "best practice for developing markets, including standards of the IAIS" (p. xv). Based on a comprehensive legal and regulatory framework centered on solvency regulation, market conduct, and corporate governance, according to Xijun's 2008 study, the CIRC has realigned its regulatory objectives and taken a number of initiatives in the area of on-site and off-site inspection, corrective measures and sanctions, and information disclosure and transparency. A risk prevention system has also been adopted. Per information in the 2008 PBC Financial Stability Report (FSR), the China Insurance Guarantee Fund was further reformed in 2007 to improve its management and independence. In this context, the 2009 Institute of International Bankers' (IIB) report adds that in September 2008, a nonprofit State-owned corporation with registered capital of RMB 100 million was set up by the CIRC to manage the fund, which is valued at a minimum of RMB 7 billion. The Fund is financed by payments from the insurance entities, and since September 2008, they are mandated to make payments based on the gross insurance policy sales rather than retained premiums. This stipulation has been instituted, per the IIB, “to provide better protection to policyholders rather than insurance companies” (p. 66).

Per a 2008 ADB report, financial sector reforms in China under the broad aegis of the 11th Five Year Plan of the government aim at “improving the depth, coverage, and quality of the finance sector” (p. ) and will focus, inter alia, on strengthening financial sector regulation and supervision, supervisory capacity, and inter-agency cooperation. The reforms will also pursue insurance market development by improving market infrastructure, internal controls in financial institutions, corporate disclosure, and transparency. As of the end of 2007, according to the PBC's 2008 FSR, there were 119 insurance institutions in China, and the industry showed evidence of increased competition and reduced concentration. Insurance intermediation further developed in China, with a total of 2,331 insurance intermediaries by end 2007. In 2007, per the same report, total assets of the insurance industry recorded the fastest growth in the previous eight years and amounted to RMB 2.9 trillion, a 36.9 percent increase from the previous year. Finally, the premium income reached RMB 703.6 billion in 2007, representing a 25 percent rise year to year. Not only was the scope and depth of insurance service expanded, but insurance fund utilization also increased in 2007, the 2008 FSR reveals. However, the sector still remains behind the global insurance industry and other domestic financial sectors in terms of its size and development. The insurance penetration was 2.93 percent in 2007, against the world average of 7.5 percent, and insurance density was RMB 532.42. Total assets of the insurance sector accounted for only 4 percent of the total financial sector assets, against the world average of 20 percent. The FSR recommends China to optimize insurance penetration in all regions of China, particularly the eastern region and the insurance experimental zones, improve business in the agriculture and rural sectors, low-income households, corporate annuity. Finally, the 2008 FSR calls for legal reforms, including the continuation of the amendment of the Insurance Law (the law was amended in February 2009), and improving the corporate governance, financial reporting, and risk management of insurance companies. It also advocates increasing awareness and instilling the insurance culture in the market through risk education and publicity of insurance products and services for the general population, and innovation and diversification of insurance products to better suit the needs of the targeted market. According to Xijun's 2008 study, foreign non-life insurers have been authorized to establish foreign-funded insurance firms in China since 2003. The insurance sector was further liberalized in December 2006, as stated in the PBC's 2007 FSR. However, certain restrictions remained, including the requirement for foreign investments in life insurance companies to be equal to or below 50 percent. As of the end of 2006, there were 41 foreign-funded insurance companies in China.

The Principles

IIICP 1 Conditions for effective insurance supervision

The legal framework for the insurance sector is mainly based on the Insurance Law, which was enacted in 1995. The Law was revised in 2002 and took effect in 2003. It was re-amended in February 2009 and took effect in October 2009. The latest amendment, per a report on the LexisNexis website, is a comprehensive reform of insurance regulation in China and “reflects the rapid development of China’s insurance industry since China joined the World Trade Organization in 2002.” It strengthens the CIRC’s powers, especially of corrective action, makes solvency and “fit and proper” requirements more stringent both for insurance firms and intermediaries, accords greater protection to policy holders, and expands investment and reinsurance avenues of insurers, However, there is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 2 Supervisory objectives

Based on a comprehensive legal and regulatory framework, according to Xijun's 2008 study, the CIRC has realigned its regulatory objectives to ensure the protection of consumers' interests, promote the development of the insurance industry, maintain fair competition, and prevent and resolve business risks. Nevertheless, there is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 3 Supervisory authority

Until 1998, supervision and regulation of the insurance industry in China had been conducted by the Insurance Department of the PBC. In December 1998, the CIRC was established as the sole insurance regulatory authority. Responsibilities of the CIRC, as stated on its website, include conducting administration, supervision and regulation of the Chinese insurance market, and ensuring the stability of the insurance industry. Despite the information provided above, there is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 4 Supervisory process

There is insufficient information publicly available addressing China's compliance with this principle as revised in 2003 by the IAIS.

IIICP 5 Supervisory cooperation and information sharing

Based on a comprehensive legal and regulatory framework, the CIRC has strived to increase its bilateral cooperation and information exchange with western countries, according to Xijun's 2008 study. Per the same report, the 2001 Regulations on Administration of Foreign-Funded Insurance Companies, as well as a memorandum of understanding (MoU) between the CIRC and the securities regulator - the China Securities Regulatory Commission (CSRC) - provide clear specifications on cooperation and information sharing. MoUs on regulatory exchange and cooperation have been established between the CIRC and its foreign counterparts in, notably, the United States, Germany, Korea, Singapore, Hong Kong and Macao. The new Implementing Rules for Regulations on Administration of Foreign-Funded Insurance Companies took effect in August 2006, updating those introduced at the end of 2001, according to the IIB 2007 Global Survey. Nevertheless, there is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 6 Licensing

The CIRC is responsible for examining and approving the establishment of insurance companies in China. In 2004, as stated on its website, the CIRC issued the Implementation Measures for Administrative Licensing to set out new licensing procedures, and streamline the supervisory and approval process for insurance products. According to Xijun's 2008 study, foreign non-life insurers have been authorized to establish foreign-funded insurance firms in China since 2003. The insurance sector was further liberalized in December 2006, per the PBC's 2007 FSR. However, certain restrictions remained, including the requirement for foreign investments in life insurance companies to be equal to or below 50 percent. The Insurance Law was amended in 2009 and stipulates that insurance companies can take the form of a limited liability company, as well as a joint stock company or a wholly state-owned company, as allowed by the previous Insurance Law, King and Wood mention in a 2009 news article. Nevertheless, there is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 7 Suitability of persons

The 2008 study by Xijun notes that the professional requirements of insurance companies and agencies were contained in the 2003 Insurance Law, the 2004 Administrative Provisions on Insurance Companies, and the 2004 Administrative Provisions on Insurance Agencies. The CIRC “examines and confirms the qualifications of the senior managerial personnel in all insurance-related organizations; [and] establishes the basic qualification standards for insurance practitioners,” per information on the regulator’s website. Further, as King and Wood note in a 2009 news article, the Insurance Law, as amended in 2009, “imposes stricter requirements on an insurance company’s ‘major shareholders’ when establishing new insurance companies.” Notably, they must have a good reputation, net assets worth at least RMB 200 million, the ability to make sustained profits, and an absence of record of any serious breaches of laws/regulations in the last three years. However, neither the previous law nor the amended law defines “major shareholder.” King and Wood speculate that these qualifications will apply mainly to domestic shareholders as opposed to foreign investors, since the latter are regulated by the Administrative Regulations on Foreign Invested Insurance Companies. Nevertheless, there is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 8 Changes in control and portfolio transfers

There is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 9 Corporate governance

In 2006, per the 2008 study by Xijun, the CIRC adopted a comprehensive set of laws and regulations in the area of corporate governance, including the Administrative Provisions on the Post-holding Qualifications of Directors and Senior Managers of Insurance Companies, and the new regulations for foreign insurers in China. These CIRC-issued regulations are aimed at enhancing the corporate governance framework for the insurance sector in China, as stated in the May 2007 Insurance Focus from Allens Arthur Robinson. The regulations require Chinese insurers to amend their corporate governance and internal control rules to clarify the functions and duties of directors, board committees, and management. The IIB's 2007 Global Survey adds to the above information by mentioning that the Implementing Rules for Regulations on Administration of Foreign-Funded Insurance Companies took effect in August 2006, updating those introduced at the end of 2001. Further, the Guidelines on Regulating the Governance Structure of Insurance Companies issued in the same year address internal control, risk management and compliance issues of insurance entities in China. However, per the 2008 FSR by the PBC, “corporate governance of insurance companies is yet to be further improved” (p. 72). Weaknesses in the corporate governance structures include weak checks and balances between the boards and general shareholders, lack of accountability and effective disciplinary mechanisms, encroachment of the interest of the company by narrow interests and collusion between insiders and outsiders, and false financial statements. The FSR recommends putting in place corporate governance regulations for insurance companies, improving internal controls and compliance management rules, increasing transparency and information disclosure, undertaking assessment of corporate governance, and establishing corporate governance monitoring institutions. Despite the above description, there is insufficient information publicly available that directly addresses China's compliance with this principle as revised by the IAIS in 2003.

IIICP 10 Internal control

In 2006, per the IIB's 2007 Global Survey, the CIRC issued the Guidelines on Regulating the Governance Structure of Insurance Companies to address internal control, risk management and compliance issues of insurance entities in China. However, the 2008 FSR by the PBC states that there is room for imporevemnt in the area of corporate governance, internal controls, and compliance management rules for insurance companies. Nevertheless, there is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 11 Market analysis

There is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 12 Reporting to supervisors and off-site monitoring

According to a regulatory and standard-setting framework assessment published by the Chinese Institute of Certified Public Accountants (CICPA) in December 2004, the CIRC has the authority to review insurance companies' financial statements. It further supervises and examines the implementation of the accounting and reporting standard by insurance companies, insurance intermediaries, and insurance asset managers. The CICPA report notes that the CIRC does not directly regulate the audit profession. As stated in Xijun's 2008 study, the CIRC has gradually reinforced and improved the off-site inspection function. As for accounting standards in China, the Ministry of Finance of the People's Republic of China (MoF) supports international accounting harmonization and is working to achieve convergence of Chinese accounting practices with the requirements of International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB), the Deloitte IAS Plus website reveals. In February 2006, the MoF formally announced the issuance of the Accounting Standards for Business Enterprises (ASBEs) which became mandatory for listed Chinese enterprises from January 1, 2007. The new ASBEs are substantially in line with IFRSs although differences exist. Going forward, in its 2008 action plan, the CICPA notes that it will continue to support convergence by maintaining an ongoing translation process, training the accounting profession in application of IFRSs, and taking part in the IASB's activities. For listed companies, ASBEs replace the Chinese Accounting Standards (CASs) and an earlier version of ASBEs, both of which differ from IFRSs. A PricewaterhouseCoopers 2009 report on IFRS adoption notes that financial institutions, in addition to ASBEs must also prepare IFRS-compliant (as issued by the IASB) financial statements. Despite the infomrtion above, there is insufficient information as to China’s compliance with this principle.

IIICP 13 On-site inspection

The CIRC has taken a number of initiatives in the area of on-site and off-site inspection, including the enactment of regulations covering on-site inspections, as stated in Xijun's 2008 study. Nevertheless, there is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 14 Preventive and corrective measures

The 2008 study by Xijun states the CIRC has taken a number of initiatives in the area of corrective measures. The 2003 Insurance Law and the 2004 Administrative Provisions on Insurance Companies provided for "relatively moderate" (p. 39) preventive and corrective measures, including explanations, interviews, reports and inspections. In this regard, King and Wood in a 2009 news article remark that the 2009 Insurance Law expands the corrective powers of the CIRC. If an insurer is found not satisfying its solvency obligations or breaching the codes of conduct, the CIRC, under the new law, may take corrective action, including, inter alia, restricting director and senior management compensation, curtailing the firm’s advertisement activities, and ordering that new underwriting be stopped. The new Law also has “more detailed rules in relation to penalties and the legal consequences of breaches of the Insurance Law, indicating the authorities' intention to enforce the Insurance Law more proactively,” According to King and Wood. Nevertheless, there is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 15 Enforcement or sanctions

According to Xijun's 2008 study, the CIRC has taken a number of initiatives in the area of sanctions. In this regard, King and Wood remark in a 2009 news article that the 2009 Insurance Law has “more detailed rules in relation to penalties and the legal consequences of breaches of the Insurance Law, indicating the authorities' intention to enforce the Insurance Law more proactively.” Nevertheless, there is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 16 Winding-up & exit from the market

There is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 17 Group-wide supervision

There is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 18 Risk assessment and management

As reported in the ADB's 2003 study on insurance, recommendations of the 2001 Capacity Building report included developing a strong, risk-based insurance industry in China. The 2008 study by Xijun states the CIRC has taken a number of initiatives, including the adoption of a risk prevention system. Nevertheless, there is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 19 Insurance activity

The IIB's 2006 Global Survey noted that the CIRC promulgated the Administrative Provisions on Reinsurance Business in October 2005, which covered the entire reinsurance market. According to Xijun's 2008 study, insurance companies were previously required to cede 20 percent of all their insurance policies to a reinsurance company designated by the CIRC. Starting 2006, they were allowed to independently choose their own reinsurance firm. As stated in the PBC's 2007 FSR, the Chinese government also began its reform of the major state-owned reinsurance company--the China Reinsurance (Group) Company (China Re). The 2009 amendments to the Insurance Law, per King and Wood’s 2009 news article, removed the provision of the 2003 Law that prohibited domestic insurers from seeking reinsurance abroad. Under the new law, reinsurance business may be ceded to foreign reinsurers. However, the law still imposes the 50 percent Restriction Rule, whereby the insurance companies must offer at least 50 percent of its reinsurance risk to at least two professional reinsurers in China before taking their business abroad. As King and Wood comment, “it remains unclear if and when the CIRC will further liberalize and abolish such 50 per cent Restriction Rule to reflect the spirit of non-discrimination against cross-border reinsurance business under the amended Insurance Law.” Despite the above description, there is insufficient information publicly available that directly addresses China's compliance with this principle as revised by the IAIS in 2003.

IIICP 20 Liabilities

According to Xijun's 2008 study, the Insurance Law and the 2004 Administrative Provisions on Insurance Companies stipulate that "insurance company shall draw various liability reserve funds" (p. 50). Nevertheless, there is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 21 Investments

As stated in Xijun's 2008 study, the 2003 Insurance Law specified the types of investments that could be undertaken by the insurance companies. In August 2005, the CIRC enacted the Measures for the Administration of Bond Investments of Insurance Institutions. The CIRC website adds that the regulator permits direct investment by insurers in the stock market. Further, foreign exchange insurance funds may be invested abroad and foreign invested insurance companies may enter into deposit arrangement with banks. Insurers are also permitted to invest in convertible corporate bonds and subordinated bonds issued by banks. These measures have been adopted, per the website, in order to “improve the matching of assets and liabilities, to spread investment risks and to raise investment returns.” Also, as the 2009 IIB report mentions, under a pilot program insurance companies will be allowed to invest in infrastructure projects and a wide range of fixed-income debt instruments. Further, under the Insurance Law, as amended in 2009, the investment avenues of the insurance companies have been expanded and, for the first time, they will be able to invest funds in immovable assets (presumably the real estate). The 2009 Law also authorizes the CIRC to promulgate regulations implementing and clarifying these provisions. Despite the above description, there is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 22 Derivatives and similar commitments

In July 2007, the CIRC and the PBC jointly issued the Measure for the Overseas Investment with Insurance Funds, which urged caution while purchasing and using financial derivative instrument, as stated in Xijun's 2008 study. The CIRC separately promulgated the Measures for the Application of Financial Derivative Instrument. Nevertheless, there is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 23 Capital adequacy and solvency

As reported in the ADB's 2003 study on insurance, recommendations of the 2001 Capacity Building report included establishing an internal solvency rating system. The PBC's 2007 FSR noted that while the insurance institutions are generally sound, "the capital adequacy of a few institutions should be improved" (p. 61). It further recommended that the capital fund of China Re be raised. With respect to capital adequacy, the 2003 Insurance Law and the 2004 Administrative Provisions on Insurance Companies provided for the minimum required capital for the establishment of a company. Regarding the calculation of minimum solvency, the CIRC promulgated the Rules on Solvency Margin and Regulatory Index for Insurance Companies in March 2003. The 2008 PBC FSR mentions that in August 2007, the Insurance Sector Solvency Regulatory Standards Committee was created “to improve regulatory mechanism over solvency” (p. 67). Solvency related on-site inspections were also intensified and violations/violators were penalized in 2007. In addition, the CIRC, on its website, outlines the various measures taken by it to strengthen the solvency of the Chinese insurance companies. The Measures on Administration of Reserves for Non-life Insurance Business of Insurance Companies (Tentative), per the website, have made the requirements on liabilities “more prudential and standardized.” In addition, the Rules of Solvency Reporting of Insurance Companies have “made the solvency assessment of insurance companies more scientific and accurate” by introducing a quarterly solvency report system and creating a specialized financial analysis team. Further, the CIRC issues Regulatory Opinions to insolvent insurance entities asking them to correct their weaknesses within the time frame prescribed. In this regard, King and Wood remark in a 2009 news article that the 2009 Insurance Law expands the corrective powers of the CIRC. If an insurer is found not satisfying its solvency obligations, the CIRC, under the new law, may take corrective action, including, inter alia, restricting director and senior management compensation, curtailing the firm’s advertisement activities, and ordering that new underwriting be stopped. Despite the above description, there is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 24 Intermediaries

The 2003 Insurance Law provided for better protection of insurers by requiring insurance firms to train and administer their agents, as noted in the August 2003 Insurance and Reinsurance Focus available from the Allens Arthur Robinson website. Regarding insurance intermediaries, according to Xijun's 2008 study, the insurance regulatory framework in China was centered on the regulation of market conduct. In 2004, the CIRC promulgated the Administrative Provisions on Insurance Agencies, Administrative Provisions on Insurance Brokering Institutions, and Administrative Provisions on Insurance Loss Assessment Institutions. The PBC's 2007 FSR indicated that insurance intermediation was steadily developing in China. As of the end of 2006, there were a total of 2,110 insurance intermediaries, a 17.22 percent increase from the previous year, including 1,563 insurance agencies, 303 insurance brokers, and 244 surveyors and loss adjusters. The total number went up to 2,331 in December 2007, per the 2008 FSR published by the PBC. The 2009 amendment to the Insurance Law has further reformed the regulation of insurance intermediaries in China, a report on LexisNexis website observes. The law now also focuses on capital and suitability of persons in insurance intermediaries. The CIRC rules on insurance intermediaries promulgated on the basis of the 2009 Law requires insurance intermediaries authorized to provide services on a national scale to a minimum registered and paid-up capital of RMB 10 million, and those providing services on a regional level to have a minimum paid-up capital of RMB 2 million. Also, major shareholders and senior management have come under more stringent requirements under the new rules. However, the available sources do not directly address China's compliance with this principle as revised by the IAIS in 2003.

IIICP 25 Consumer protection

The 2008 study by Xijun indicates that the 2003 Insurance Law and its related regulations provided for "the basic requirements of consumer protection" (p. 52). The Law notably required making insurance information available to customers and to the public. The Insurance Law was further amended in 2009, and per King and Wood’s 2009 news article, one of its main focus is on “greater clarification and protection of the rights and interests of policyholders and the insured.” The law, notably, imposes a time limit on the termination of a contract by an insurer on the ground that the policyholder provided inaccurate or incomplete information. The termination right can be exercised 30 days after the discovery of the breach or within two years from the signing of the contract, whichever date is earlier. In addition, if the insurer is aware that the applicant has not made full and accurate disclosure at the time of signing the relevant insurance contract, it may not rely on such grounds to terminate the contract. Further, the expanded corrective powers of the CIRC against the insurers who violate solvency requirements or codes of conduct will also strengthen consumer protection. In January 2005, per the May 2005 Insurance and Reinsurance Focus available from the Allens Arthur Robinson website, the CIRC established an Insurance Protection Fund, with the aim of protecting policyholders in the case of an insurer's bankruptcy. The Protection Fund applies to all insurers, domestic and foreign. The Chinese authorities have also launched education campaigns "to safeguard the rights and interests of insurance consumers" (p. 60), as stated in the PBC's 2007 FSR. Nevertheless, there is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 26 Information, disclosure & transparency towards the market

The 2008 study by Xijun states the CIRC has taken a number of initiatives in the area of information disclosure and transparency. Pursuant to the 2003 Insurance Law, according to Xijun, insurance regulators were entitled to require "the supply of related written reports and materials within the prescribed time limit" (p. 37). Nevertheless, there is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 27 Fraud

The regulatory framework addressing fraud and market trading abuse includes the 2003 Insurance Law, as well as regulations promulgated in 2004, including the Administrative Provisions on Insurance Agencies, Administrative Provisions on Insurance Brokering Institutions, Administrative Provisions on Insurance Loss Assessment Institutions, and Administrative Provisions on Insurance Companies. These regulations further cover unfair competition behaviors. Nevertheless, there is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

IIICP 28 Anti-money laundering/ Combating the Financing of Terrorism

The U.S. Department of State's (DoS) 2008 International Narcotics Control Strategy Report indicates that while significant progress has been achieved by the Chinese government in anti-money laundering (AML) and combating the financing of terrorism (CFT) measures, "money laundering remains a serious concern as China restructures its economy and develops its financial system." The AML/CFT measures include legislative reforms, enforcement mechanisms, and international cooperation. The report elaborates that the PBC is responsible for AML/CFT coordination among the other financial regulatory authorities, namely the CIRC, CSRC, and the China Banking Regulatory Commission. The Financial Intelligence Unit (FIU) of the PBC is comprised of two main bodies, the Anti-Money Laundering Bureau and the China Anti-Money Laundering Monitoring and Analysis Center (CAMLMAC). The AMLB is responsible for coordinating all AML initiatives, and carrying out administrative and policy oversight. Conversely, the CAMLMAC has the authority to collect, analyze, and disseminate suspicious transaction reports. The Penal Code criminalizes AML in China, as stated in the U.S. DoS report. On January 1, 2007, a new AML Law entered into force, requiring all financial institutions, including insurance companies, to report large and suspicious transactions. Despite the information provided above, there is insufficient information publicly available addressing China's compliance with this principle as revised by the IAIS in 2003.

The Financial Action Task Force (FATF) in its 2007 mutual evaluation assessed China's AML/CFT regime against the FATF's forty plus nine recommendations and special recommendations. The report highlights several important weaknesses in China's customer due diligence (CDD) regime. For example: (1) there is no requirement in Chinese law for the identification and verification of the beneficial owner; (2) only the banking sector is subject to specific requirements concerning the identification of legal persons; and (3) China has no specific and comprehensive legal requirement to conduct ongoing due diligence. China’s record keeping regime is largely effective, except that there is an absence in Chinese law and regulations of the requirement that financial institutions retain business correspondence and similar documents. As for China's internal control, compliance and audit system, the regime is not designed to address terrorist financing risk; there is no explicit requirement in the AML Law for financial institutions to have an adequate audit function to test compliance with internal AML/CFT controls; and the AML Law does not require financial institutions to provide relevant employees with CFT training. The Chinese AML/CFT regime is found to be especially weak in addressing foreign branches and subsidiaries. The two main shortcomings are, namely: (1) there are no specific provisions in Chinese law or regulations requiring Chinese financial institutions to apply the higher standard where the AML/CFT requirements of China and the host country differ; and (2) there are no requirements in Chinese law or regulations to inform the home country supervisor when a foreign branch or subsidiary is unable to observe appropriate AML/CFT measures. Regarding supervisory powers, the FATF report states that the AML Law and the Insurance Law, the Large-Value Transaction (LVT)/Suspicious Transaction Reporting (STR) Rules and the AML Rules give the CIRC the power to supervise the observance of the AML/CFT regulations by insurance institutions and to impose administrative penalties on those who fail to fulfill their obligations. Furthermore, the AML Law stipulates that the PBC is the competent authority responsible for the AML supervision of all financial institutions. However, the AML Law does not vest all of the responsibility for monitoring AML compliance within the PBC. The other supervisors are charged with the responsibility within their respective sector, but a primary limitation cited by the FATF report is that "no supervisory program [has been] implemented for the securities and insurance sectors following extension of law to these sectors" (p. 153). In terms of supervisory sanctions, the FATF report finds that the Chinese sanctions regime "focuses excessively on minor deficiencies and does not appear effectively to target structural weaknesses" and that "the level of the sanctions provided in the AML Law appears relatively low for major deficiencies" (p. 152).

The Institute of International Bankers’s 2007 Global Survey reports that CFT Regulations were released in June 2007, requiring suspected terrorist-linked transactions to be reported to the authorities. Furthermore, the 2009 U.S. DoS report notes that in August 2007, China adopted the Administrative Rules for Financial Institutions on Customer Identification and Record Keeping of Customer Identity and Transaction Information, which requires all financial institutions to identify and verify their customers, including the beneficial owner. Despite the above information as regards progress made by China in implementing the FATF recommendations and strengthening its AML/CFT regime, none of the sources mentioned above explicitly address China's compliance with this principle as revised by the IAIS in 2003.