On the 19th of June 2017, the China insurance Regulatory Commission (CIRC) published its Draft Discussion Paper on Credit Guaranty Insurance Business (Discussion Paper). The key content of the Discussion Paper is:
1. Scope of the Discussion Paper
a. Credit Insurance (excepting export credit insurance);
b. Guaranty Insurance; and
c. Reinsurance-type Credit Guaranty Insurance.
2. Requisite Solvency Levels for Insurers
An Insurer’s immediately prior quarter should demonstrate a minimum ‘core’ solvency adequacy ratio (core capital: minimum capital) of 75% and a minimum ‘aggregated’ solvency adequacy ratio (core+non-core capital: minimum capital) of 150%.
3. Requisite Maximum Retentions
a. Aggregated retentions should not exceed 10 times an Insurer’s net asset value as at the end of the immediately prior quarter;
b. Single retentions should not exceed 5% of an Insurer’s net asset value as at the end of the immediately prior quarter, and in any event should not exceed RMB 500 million; and
c. Any amounts exceeding the retention maximums specified above should be ceded to reinsurers.
4. Restrictions on provision of credit guaranty for financing purposes:
a. ABS-like business or bond transfer activities;
b. bond issuance rated less than AA; and
c. any financing activities in respect of an Insurer’s parent or subsidiaries or related parties (excepting that an Insurer’s related parties are the lenders).
5. Launch of credit guaranty business by an Insurer shall not involve:
a. cover any illegal activities;
b. underwrite any loss that will not actually happen, or any ascertained loss;
c. split the term or insurance amount of insurance policy for the purposes of underwriting risks under one single financing contract;
d. any attempt to fundamentally alter an existing credit guaranty policy; and
e. underwrite risks in respect of any financing arrangement of which the interest rate exceeds nationally mandated caps.