The PRC Insurance Law (the Insurance Law) was passed in 1995 and amended in 2002. The amendments passed on 28 February 2009 are significant, and will take effect on 1 October 2009. A number of new provisions are included and extensive amendments to existing provisions made. Some of the key amendments are discussed below.


Insurer's termination rights limited
One key theme of the revised Insurance Law (the revised Law) is greater clarification and protection of the rights and interests of policyholders and insureds. One example of this is the imposition of time limits on an insurer to terminate an insurance contract on the ground that the relevant policyholder has not made full and accurate disclosure – such a termination right is required to be exercised within 30 days after the insurer is aware of the breach or two years from the signing of the relevant insurance contract, whichever 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.


Qualification requirements for major shareholders
The revised Law imposes stricter requirements on an insurance company's 'major shareholders'. In particular, a major shareholder (which is not defined in the law and is subject to further interpretation by the authorities) is required to have:

the ability to make sustained profits and have a good reputation;
no record of any serious breaches of law or regulations in the last three years; and
net assets of at least RMB200 million.


Permission to invest in immovable assets
One key change under the revised Law is that, for the first time, insurance companies may use their funds to invest in 'immovable assets' (which is not defined but presumably includes real estate). The PRC insurance regulator, the China Insurance Regulatory Commission (CIRC), is authorised to draft implementation rules that are expected to give further details of regulation regarding these investments, including, for example, in relation to investment requirements and limits.

Investment by insurance companies in bonds, shares and units in securities investment funds are also permitted, although this provision appears to be simply a reflection of the practice that is currently permitted under existing regulations issued by CIRC.


Priority for domestic reinsurers removed
The previous Article 103 of the Insurance Law, which provided that 'an insurance company that needs to cede reinsurance business shall give priority to insurance companies established within China' has been removed in the revised Law. This step is consistent with China's commitments for entry to the World Trade Organisation.


Other key changes
Some of the other highlights of the amendments to the Insurance Law are as follows:

The revised Law permits employers to take out personal insurance (including life insurance) for their employees as insureds without their specific consent.
Under the revised Law, CIRC is authorised to take certain measures in relation to insurance companies that do not satisfy certain solvency requirements. Such measures include, among others, placing restrictions on the remuneration of the directors, supervisors and senior management of those companies, restricting those companies' advertising activities and ordering them to stop writing new business.
The revised 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.

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