The China Insurance Regulatory Commission (CIRC) issued the Consultation Paper on Rules for Discounting of Policies of Life Insurance (Consultation Paper) on 8 January 2018.
Key content of the Consultation Paper is:
- Discounting of Policies of Life Insurance (Discounting Business) refers to the practice whereby the holder of a life insurance policy (Policy Holder) works through a Discounting Operator to transfer the benefits under the Policy to a Policy Investor, thereby allowing the said Policy Holder to redeem immediately, as cash, the net present discounted value of the Policy. The Policy Investor then waits until the Policy either matures, or claims events under it arise, to realise a return and gain on their participation in the Discounting Business.
- Those Discounting Operators wishing to operate the Discounting Business must (i) be licensed by CIRC; and (ii) have paid-in capital of at least RMB 500 million.
- Those Policies allowed to be used in the Discounting Business include standard Policies for each of term-life; endowment; and annuity.
- The operation of Discounting Business should meet the following requirements: (i) the Policies used in the Discounting Business should have been in force for at least 2 years; (ii) the insurers of all Policies used in the Discounting Business must be CIRC-authorised insurers operating within China; and (iii) the original Discounting Policy Holder must receive his/her cash redemption on a one-time basis within 3 days of the Policy being discounted and transferred through the Discounting Operator.
- All Discounting Operators must use standard-form contracts for their operation of the Discounting Business, and these standard-form contracts must be filed with CIRC prior to a Discounting Operator's commencement of the Discounting Business.
- For a limited period, and on a trial basis, Policy Investors may only access their own personal cash holdings in their participation in the Discounting Business (or in the case of an institutional investor, its own cash holdings up to a limit not exceeding its net asset value). Further, during the trial period, Policies which have already been discounted and transferred can not be subsequently discounted or transferred again.