Administrative Measures for Subordinated Term Debts of Insurance Companies

 2018-05-20  12


  • Administrative Measures for Subordinated Term Debts of Insurance Companies
  • Area of Law Insurance
  • Level of Authority Departmental Rules
  • Date issued02-13-2018
  • Effective Date02-13-2018
  • Status Effective
  • Issuing Authority China Insurance Regulatory Commission

Administrative Measures for Subordinated Term Debts of Insurance Companies
(Promulgated by the Order No. 2 [2011] of the China Insurance Regulatory Commission on October 6, 2011, and revised for the Decision of the China Insurance Regulatory Commission on Amending the Administrative Measures for Subordinated Term Debts of Insurance Companies on March 15, 2013, and amended for the Decision of the China Insurance Regulatory Commission to Amend Four Sets of Rules Including the Detailed Rules for the Implementation of the Regulation of the People's Republic of China on the Administration of Foreign-Funded Insurance Companies by Order No. 4 [2018] of the China Insurance Regulatory Commission on February 13, 2018)
Chapter I General Provisions
Article 1 To regulate the funds raising, management, principal & interest payment and information disclosure regarding subordinated term debts of insurance companies (hereinafter referred to as “subordinated debt”) and guarantee the solvency of insurance companies, these Measures are made pursuant to the Company Law of the People's Republic of China, the Insurance Law of the People's Republic of China and other relevant laws and administrative regulations.
Article 2 For the purpose of these Measures, the term “insurance company” refers to Chinese-funded insurance companies, Sino-foreign joint venture insurance companies and wholly foreign-funded insurance companies formed under Chinese law within the territory of China
Article 3 For the purpose of these Measures, the term “subordinated debt” refers to the debt issued by an insurance company upon approval to cover its temporary or periodic capital deficiency, where the term is five years or more, and where the payment of principal and interest is subordinated to claims of insurance policies and other liabilities but superior to the equity capital of the insurance company.
Article 4 Funds raised by insurance companies from issuing subordinated debts can be recognized in Tier 2 Capital, but may not be used to cover their daily operating losses. The amount of subordinated debt recognized in Tier 2 Capital of an insurance company may not exceed 50% of its net assets. The detailed ratification standards shall be separately set by the China Insurance Regulatory Commission (“CIRC”).
Article 5 These Measures shall apply to the fund raising regarding subordinated debts by insurance group (or holding) companies.
Article 6 The CIRC oversees and administers the funds raising, management, principal & interest payment, and information disclosure regarding subordinated debts of insurance companies.
Article 7 Insurance companies which raise funds through subordinated debt (hereinafter referred to as the “fund raiser”) shall steadily operate business and protect legal rights and interests of the creditors of subordinated debts.
Chapter II Application
Article 8 To raise funds through subordinated debt, insurance companies must meet the conditions as set forth by these Measures and report to the CIRC for examination and approval.
Article 9 An insurance company may apply to raise funds through subordinated debt if its solvency adequacy ratio is lower than 150% or it is estimated that its solvency adequacy ratio will be lower than 150% in the next two years.
Article 10 To apply to raise funds through subordinated debt, an insurance company shall meet the following conditions:
1. has been operating for more than three years;
2. has the audited net assets of at least 500 million yuan at the end of the previous year;
3. after the raising of funds, the total amount of unpaid principal and interest on subordinated debt does not exceed 50% of its audited net assets at the end of the previous year;
4. it is solvent;
5. has a sound corporate governance structure;
6. internal control rules are sound and have been strictly followed;
7. assets are not possessed by any natural person, legal person or other organization with real control rights, or any other related party;
8. has not received any major administrative penalty in the last two years; and
9. other conditions as set forth by the CIRC.
Article 11 The plan for raising of funds through subordinated debt shall be made by the board of directors of an insurance company. The (general) meeting of shareholders shall make special resolutions on the following matters:
1. scale, term and interest rate;
2. raising methods and targets;
3. uses of raised funds;
4. term of validity of the resolution on raising of funds through subordinated debt; and
5. other important matters in relation to the current issuance of subordinated debt.
Article 12 A fund raiser may retain a credit rating agency to make a credit rating on the current issuance of subordinated debt.
A credit rating institution shall objectively and fairly issue relevant reports and documents and assume corresponding liabilities.
Article 13 To apply to raise funds through subordinated debt, an insurance company shall submit the following documents to the CIRC:
1. an application report for the issuance of subordinated debt;
2. the special resolution of the (general) meeting of shareholders on the current issuance of subordinated debt;
3. a feasibility study report;
A feasibility study report shall include the following content:
(1) necessity to raise funds through subordinated debt;
(2) cost- benefit analysis of subordinated debt (the scale and term of the raised funds, pricing of the debt, cost analysis, use of raised funds, earnings forecasting, and influence on solvency); and
(3) raising methods and targets.
4. a prospectus;
5. the text of the subordinated debt agreement or contract;
6. the total amount of unpaid subordinated debt that has been raised, and the use of the raised funds;
7. a subordinated debt management plan made by the fund raiser;
8. other important contracts in relation to the raising of funds through subordinated debt; and
9. other materials as set forth by the CIRC.
If the insurance company has made a credit rating regarding the current issuance of subordinated debt, it shall also submit the credit rating report.
Article 14 Materials submitted by a fund raiser with the CIRC shall be authentic, accurate and complete. A feasibility report shall contain the methods, parameters and hypothesis for solvency prediction.
Article 15 Insurance companies, their shareholders and other third parties may not provide guarantee for the issuance of subordinated debt.
Chapter III Raising
Article 16 A fund raiser shall, within six months after the CIRC approves the raising of funds through subordinated debt, finish the issuance of subordinated debt. Subordinated debts can be issued by installments.
If a fund raiser fails to finish the raising of funds through subordinated debt within the prescribed time limit, the original approval document shall automatically become invalid. If the fund raiser needs to raise funds through subordinated debt, it shall make a new application.
Article 17 The amount of subordinated debts issued by an insurance company may not exceed the quota approved by the CIRC.
Article 18 Subordinated debts of insurance companies shall be issued to qualified investors.
Qualified investors are domestic and overseas incorporated bodies with independent analysis ability and risk tolerance ability for the purchasing of subordinated debts, not including:
1. companies under the control of the fund raiser; and
2. companies under the control of the same third party which controls the fund raiser.
Article 19 The subordinated debts held by a single shareholder of the fund raiser or the controller thereof may not exceed 10% of the amount raised at a single time or the cumulative amount, and the proportion held by the said shareholder or the controller thereof may not be the highest in the amount raised at a single time or the cumulative amount.
The cumulative total of the subordinated debts held by all shareholders of the fund raiser and all the controllers of the shareholders may not exceed 20% of the amount raised at a single time or the cumulative amount.
Subordinated debts issued by a fund raiser by installments shall be consolidated into one subordinated debt and be governed by the preceding two paragraphs.
Article 20 A fund raiser shall ensure that the conditions and quotas of subordinated debts issued to insurance companies or insurance asset management companies conform to the relevant provisions of the CIRC.
Article 21 A fund raiser may raise subordinated debt by itself or entrust it to an institution qualified for underwriting securities.
Article 22 A fund raiser shall, within 10 working days after the end of the raising of funds through subordinated debt, report the situation on the raising of funds to the CIRC, and file with the CIRC a photocopy of the subordinated debt contract concluded with the creditor of subordinated debt.
Chapter IV Management and Payment
Article 23 A fund raiser may commission the China Government Securities Depository Trust & Clearing Co. Ltd. or the China Securities Depository and Clearing Corporation Limited as the registration or custodian institution of subordinated debts, and may commission them to pay principal and interest on behalf.
Article 24 A fund raiser shall manage funds raised through subordinated debt in a special account, and use such funds in strictly accordance with the purposes as stipulated in the feasibility study report and the subordinated debt management plan.
Article 25 Funds raised through subordinated debt shall be utilized according to the relevant provisions of the CIRC, and may not be used for investment in stock equity, immovable property and infrastructure.
Article 26 A fund raiser may not pay the principal and interest on subordinated debt until it is able to ensure that the solvency adequacy ratio be no less than 100% after such payment.
Article 27 A fund raiser may not distribute profits to shareholders during the period when it cannot pay the principal and interest on subordinated debt.
Article 28 A fund raiser may set the right of redemption of subordinated debt, provided that the time of redemption shall be at least five years after the issuance of subordinated debt.
A subordinated debt contract shall not has such stipulation that the creditor has right to resell subordinated debt.
If subordinated debt is redeemed before maturity according to contract, the insurance company's solvency adequacy ratio shall be no less than 100% after such redemption.
Except for the right of redemption prescribed in the preceding paragraph, a fund raiser shall not redeem subordinated debt before maturity.
Article 29 After having paid the principal and interest on subordinated debt in full amount or having redeemed subordinated debt before maturity, a fund raiser shall report details regarding such repayment or redemption to the CIRC within 10 working days.
Article 30 If there is a need to extend the maturity of subordinated debt, the fund raiser shall make a proposal on extension of maturity, adjustment of interest rate and other matters pertinent, and get approved by the creditor of subordinated debt.
The fund raiser shall report details regarding extension of maturity to the CIRC within five working days after signing a maturity extension agreement with the creditor of subordinated debt, and submit a photocopy of such agreement to the CIRC.
Article 31 Creditors may transfer subordinated debts to other qualified investors.
Chapter V Information Disclosure
Article 32 The contents, preparation and issuance of information disclosure documents such as a subordinated debt prospectus, special purpose financial reports, and notifications of major matters shall conform to the relevant provisions of the CIRC.
Article 33 A fund raiser shall make a subordinated debt prospectus and other information disclosure documents according to the relevant provisions of the CIRC and ensure the authentic, accurate, complete and timely disclosure of all information that has a material impact on the issuing targets.
Fund raisers and related parties may not mislead investors, by any means, into purchasing subordinated debts.
Article 34 A fund raiser shall present to investors in a conspicuous location within the prospectus that: “An investor shall, when purchasing the current subordinated term debt, carefully read this prospectus and the relevant information disclosure documents, and make an independent investment judgment. The approval of the China Insurance Regulatory Commission for the current issuance of subordinated term debt does not indicate that it has made any appraisal on the investment value of the current debt, nor does it indicate that it has made any judgment on the investment risk of the current debt.”
Article 35 A fund raiser shall specify in the raising clauses of a prospectus that:
1. the fund raiser cannot pay the principal and interest on subordinated debt until it can ensure that the solvency adequacy ratio be no less than 100% after such payment;
2. the creditor does not have the right to apply to a court for bankruptcy liquidation of the fund raiser when the fund raiser is unable to pay interest or repay principal on time; and
3. after the fund raiser enters into bankruptcy liquidation procedures according to law, the payment of principal and interest on subordinated debt shall be subordinated to all the non-subordinated debts.
Article 36 The raising clauses in a prospectus shall be concrete and clear, fully disclose to investors the provisions of these Measures on the issuance, redemption, and maturity extension of subordinated debts and the payment of principal and interest, and specify in detail the rights and obligations of both parties regarding the subordinated debt. The contents of stipulated clauses may not violate law, administrative regulations and the mandatory provisions of the CIRC.
A prospectus shall, at a minimum, include the following content:
1. scale, term (starting date and expiration date) and interest rate of subordinated debt;
2. raising methods and targets;
3. uses of raised funds;
3. statutory terms, time, procedures and methods for payment of principal and interest;
4. transfer and redemption of subordinated debt;
5. liabilities of the fund raiser and the creditor of subordinated debt for breach of contract; and
6. intermediary institutions and their liabilities.
If the fund raiser has a credit rating made on the current issuance of subordinated debt, such content as the credit rating report and the arrangements for follow-up ratings shall also be included in the prospectus.
Article 37 During the existence of subordinated debt, a fund raiser shall disclose the special purpose financial report regarding subordinated debt for the previous year to the creditor of subordinated debt within four months as of the end of each accounting year. The report shall, at a minimum, include the following content:
1. audited financial statements;
2. audited solvency position statement, minimum capital calculation sheet, recognized assets statement and recognized liabilities statement;
3. payment of principal and interest on the debt;
4. utilization of raised funds;
5. major investment, related transactions and other matters that influence the payment of principal and interest on subordinated debt; and
6. other information that has substantial influence on the creditor of subordinated debt.
If the fund raiser has a follow-up rating made, the follow-up rating shall also be included.
Article 38 Under any of the following circumstances, a fund raiser shall notify the creditors of subordinated debt without delay, and at the same time, submit a report to the CIRC:
1. there occurs a significant unfavorable alteration in its solvency position;
2. it is estimated that the payment of principal and interest on subordinated debt will be difficult at maturity;
3. it has concluded any guarantee contract or any other important contract that may have a substantial impact on the payment of principal and interest on subordinated debt;
4. it has a significant deficit or suffers from heavy losses which exceed 10% of the net assets;
5. it is involved in any major arbitration or litigation;
6. capital decrease, merger, split or dissolution occurs, or it has applied for bankruptcy;
7. it plans to conduct major debt reorganization; or
8. any other circumstances as set forth by the CIRC.
Chapter VI Supervision and Administration
Article 39 A fund raiser shall, before April 30 of each year, submit a special purpose report on subordinated debts to the CIRC, including the following information about subordinated debts which have been raised but have not been paid off:
1. amount, term and interest rate;
2. details regarding registration and custody;
3. utilization of raised funds;
4. payment of principal and interest;
5. significant investments, related transactions and other matters affecting the payment of principal and interest; and
6. other information as specified by the CIRC.
Article 40 A fund raiser that registers and entrusts subordinated debts under Article 24 of these Measures shall submit a special purpose report on subordinated debts to the CIRC within 15 working days as of the end of each quarter. Such a report shall cover:
1. the registration and custody of subordinated debts;
2. the transfer of subordinated debts; and
3. other important matters that need to be explained.
Article 41 The CIRC may make on-site inspections of insurance companies regarding their management of subordinated debts and the utilization of raised funds.
Article 42 If an insurance company violates these Measures, the CIRC may order it to make correction, and may take the following regulatory measures in light of the actual situation:
1. refuse to accept applications for the issuance of subordinated debts for three years; or
2. suspend the ratification of the amount of subordinated debts that can be recognized in its Tier 2 Capital.
Article 43 If a fund raiser or any of its employees violates these Measures, the CIRC shall impose a punishment according to the laws and administrative regulations; if there is no governing provision in the laws and administrative regulations, the CIRC shall order the violator to make correction and give a warning to the violator. If there is any illegal gain, the CIRC shall impose a fine between one to three times of the illegal gain, capped at 30,000 yuan; if there are no illegal gains, the CIRC shall impose a fine not more than 10,000 yuan. If the violator is suspected of a crime, the case shall be transferred to the judicial organ for criminal investigation.
Chapter VII Supplementary Provisions
Article 44 For the purpose of these Measures, the term “major administrative penalty” refers to one of the following administrative penalties against an insurance company:
1. a single fine of 1.5 million yuan or more;
2. restricting the scope of business of the insurance company;
3. ordering it to stop accepting new business for one year or more;
4. ordering it to stop business for rectification;
5. revoking the business license of a branch company at the level of a city under separate state planning or a province;
6. the chairman or general manager is removed from his or her position or banned from practicing in the sector; or
7. any other major administrative penalty as set forth by the CIRC.
Article 45 The power to interpret these Measures remains with the CIRC.
Article 46 These Measures shall come into force on the date of promulgation. The Interim Measures for the Administration of Subordinated Term Debts of Insurance Companies (Order No. 10 [2004] of the CIRC) issued by the CIRC on September 29, 2004 shall be abolished simultaneously.