On 5 January 2018, the China Insurance Regulatory Commission (CIRC) and the PRC’s State Administration of Foreign Exchange (SAFE) jointly published the Notice on Standardisation of 'Domestic-Security + Offshore-Borrowing' Activities by PRC Insurers (the Notice).
The Notice defines ‘Domestic-Security + Offshore-Borrowing Activities by PRC Insurers’, in respect of a Special Purpose Vehicle’s (SPV) fund-raising activities via foreign-to-China (Offshore) bank loans, as either (i) the application by a PRC Insurer with a PRC Bank for that PRC Bank to open a stand-by letter of credit, or otherwise provide an indemnity, for the benefit of the SPV; or (ii) a PRC Insurance Holding Company (PRC Holdco) directly providing guarantees for the benefit of the SPV. The Notice goes on to define ‘SPV’ as an Offshore corporation, established and owned or controlled 95%+ by a PRC Insurer, for the purposes of utilizing that PRC Insurer’s Offshore and Onshore assets and rights for that PRC Insurer’s Offshore financing and investment activity.
The key elements of the Notice are:
- Clarification of the ability of PRC Holdcos (and only PRC Holdcos) to provide counter-indemnities to PRC Banks in respect of Domestic-Security + Offshore-Borrowing activities undertaken by the PRC Insurer subsidiaries of such PRC Holdco.
- Any PRC Insurer wishing to conduct Domestic-Security + Offshore-Borrowing activity must ensure that at the end of the immediately preceding quarter (a) its solvency ratio is no lower than 150%; and (b) its solvency risk rating is no lower than ‘A’. Further, the relevant SPV must have the ability to assume the principal debtor obligations.
- Any PRC Insurer wishing to undertake Domestic-Security + Offshore-Borrowing activity must first secure shareholder and/or board formal deliberation, with such formal deliberation resulting in a written resolution.
- Any SPV of a PRC Insurer wishing to undertake Domestic-Security + Foreign Borrowing activity, where the amount of such foreign borrowing by the SPV is to exceed USD$50 million, must prior to making such borrowing first file a report with Insurance Asset Management Association of China (IAMAC) for assessment by IAMAC.
- No PRC Insurer is permitted to allow the conduct of Domestic-Security + Offshore-Borrowing activity by any entity except that PRC Insurer’s own SPV.
The Notice is effective upon the date of its publication.