CHINA Law and Practice Contributed by: Elsie Shi, George Yu, Eleanor Gu and Zach Xu, Jincheng Tongda & Neal Law Firm
Prudential, Risk-Based and Conduct Supervision The NFRA supervises capital adequacy, solvency, reserves, risk management, sales conduct, suit- ability, disclosure and consumer-protection matters through a combination of off-site monitoring, on-site inspections, penetrating supervision and technology- enabled data reporting. Enforcement, Recovery and Risk-Control Mechanisms The NFRA conducts insurance-sector enforcement and investigations, and handles illegal insurance activ- ities. It develops recovery and resolution mechanisms for insurers, and co-ordinates with local authorities to prevent and contain insurance-related financial risks. 2.2 Writing of Insurance and Reinsurance Under PRC law, only institutions approved by the NFRA and holding the relevant insurance business licence may conduct insurance or reinsurance busi- ness. PRC law does not distinguish between licens- ing requirements based on the type of policyholder; once an insurer is licensed for a particular business line, it may write policies across consumer, SME and corporate segments. To establish an insurance company, the applicant must meet the requirements under the Insurance Law, the Measures for the Administration of Shareholding in Insurance Companies, and related NFRA rules: • a minimum paid-up capital of CNY200 million is required for insurers and reinsurers writing only life or non-life business (CNY300 million for composite reinsurers); • satisfaction of financial, credit, governance and shareholder-qualification criteria by the shareholder(s) (or, where the shareholder is a for- eign insurance company, the conditions under the PRC Regulations on the Administration of Foreign- Funded Insurance Companies) is required; and • meeting other requirements, such as qualified per- sonnel and approved articles of association. Insurers are subject to ongoing prudential supervision. Under the Insurance Law and the Solvency Adminis- tration Rules, failure to meet any of the following may
result in the NFRA imposing supervisory measures, including suspending new business: • core solvency ratio below 50%; • comprehensive solvency ratio below 100%; or • comprehensive risk rating below Category B. Excess layer insurance is essentially direct insurance. There are no separate licensing or underwriting rules; the general product and conduct requirements apply. Reinsurance is also governed by the Insurance Law, with more detailed requirements set out in specific regulations such as the Reinsurance Business Admin- istration Rules. 2.3 Taxation of Premium The overall tax burden on insurers typically arises from: • VAT on insurance services; • VAT-related local surtaxes; • stamp duty on certain non-life insurance contracts; and • corporate income tax at the insurer level. VAT is generally levied at 6% on premium income for general VAT taxpayers – though agriculture and live- stock insurance, life insurance with a maturity of more than one year, insurance services provided for export goods, etc, are exempt from VAT. VAT payable may also give rise to surtaxes such as Urban Maintenance and Construction Tax (typically 7%, 5% or 1% depending on location) and Education Surcharge (3%) plus Local Education Surcharge (2%), calculated on the VAT tax payable. Stamp duty is imposed on property insurance con- tracts (excluding reinsurance) at 0.1% of the premium amount. Insurers are also subject to corporate income tax at a rate of 25% on taxable profits. Certain contributions to the Insurance Security Fund and specified technical reserves may be deducted on a pre-tax basis.
88 CHAMBERS.COM
Powered by FlippingBook