On 11 May 2016, the China Insurance Regulatory Commission (“CIRC“) issued the Notification to Strengthen the Supervision and Administration of Illegal Sales of Offshore Insurance Products (the “Notification“) in which it requests its local offices to more closely scrutinise and take action against illegal sales of offshore insurance products within China.

The Notification requests local offices of the CIRC to strictly investigate, prohibit and impose penalties on domestic institutional or individual consultants, investment managers or insurance brokers which market or advertise insurance products of offshore insurance institutions within China in return for certain benefits from these offshore institutions. Although these activities are already prohibited under notices previously issued by the CIRC, the Notification re-emphasises that the prohibitions cover (i) advertising or marketing activities conducted through product introduction fairs, investment management summits or investment management presentations and (ii) arrangements for individuals to travel overseas to subscribe to offshore insurance products outside China.

The Notification does not only request its local offices to focus on illegal sales of offshore insurance products which involve domestic underwriting and subscription of policies but also those which are marketed domestically, but are underwritten and subscribed to outside of China.

As to any reinsurance transaction between a foreign reinsurer and a Chinese fronting insurer, the reinsurance by overseas reinsurers of Chinese risks is not prohibited under Chinese law and therefore not directly covered by this Notification, which relates to direct insurance. However, where a fronting structure is used, it needs to be carefully structured to ensure that the prohibition on foreign direct insurance is not breached.