The China Insurance Regulatory Commission (CIRC) issued the Circular on Issues Concerning the Implementation of the Interim Measures for the Administration of Connected Transactions of Insurance Companies (Circular) on October 14, 2008, which took effect on the same day. The Interim Measures for the Administration of Connected Transactions of Insurance Companies (the Interim Measures) took effect on April 6, 2007, and the Circular offers guidance on certain issues relating to the implementation of the Interim Measures.
Under the Circular, for the business of managing insurance trust funds or the business of insurance brokerage transactions between an insurance company (including a group company and an insurance holding company) and its controlled subsidiaries, or between the subsidiaries of an insurance company, turnover will be calculated on the basis of management fees or brokerage fees. For these types of transactions that take place between the insurance company and other related persons, the turnover will be calculated based on the amount of funds under trust management or the premiums collected by related persons serving as the insurance company’s agent.
According to the Circular, where multiple connected transactions occur between an insurance company and its controlled subsidiaries, or between the insurance company’s subsidiaries, both parties to the transactions must separately calculate the turnover of the connected transactions on a cumulative basis.
Under the Circular, a material connected transaction of maritime security does not need to go through the approval of the board of directors or a general meeting of the equity holders. Instead, it may be implemented upon the insurance company’s careful reviews, conducted according to its internal authorization procedures. The insurance company must then report the transaction in accordance with the relevant regulations.
For a material connected transaction between an insurance company and its controlled subsidiary, or between the insurance company’s subsidiaries, the party to which the transaction is material or the insurance group (or holding company) will report the transaction to CIRC. If a connected transaction constitutes a material transaction to both parties, the parties may agree that one of them or the insurance group (or holding company) will report the transaction to CIRC. The report shall elaborate on the impact of the transaction on the current and future financial situation, as well as the operational results of both parties to the transaction.
In addition, according to the Circular, for interactions involving enterprise annuity investment management and account management between an insurance company and its controlled subsidiary, or between an insurance company’s subsidiaries, the Interim Measures do not apply if the parties have strictly complied with relevant regulations on enterprise annuity management.