CHINA Law and Practice Contributed by: Elsie Shi, George Yu, Eleanor Gu and Zach Xu, Jincheng Tongda & Neal Law Firm
7. Alternative Risk Transfer (ART) 7.1 ART Transactions Captive insurance and catastrophe bonds are the pri- mary forms of alternative risk transfer (ART) in China. Chinese insurance companies have actively engaged in issuing catastrophe bonds in overseas markets. Under the Notice on the Supervision and Administra- tion of Captive Insurance Companies, captive insur- ance companies are regulated as a special form of insurance company established solely to provide property, short-term health and accident coverage for their parent group and employees. Regarding insurance-linked securities (ILS), such as catastrophe bonds, in September 2025 the NFRA issued the Notice on the Issuance of Insurance-Linked Securities by Domestic Insurance Companies in the Hong Kong Market (the “Notice on ILS Issuance in HK”). This new regulation explicitly supports domestic insurers in sponsoring “sidecar” ILS in Hong Kong and broadens the scope of recognised ILS beyond stan- dalone catastrophe bonds, allowing insurers to cede risks to special purpose insurers (SPIs) via propor- tional reinsurance, thereby accessing global capital markets for risk diversification. 7.2 Foreign ART Transactions There are no known cases in this jurisdiction where overseas ART transactions are explicitly treated or recognised as reinsurance contracts by the NFRA. However, under the newly issued Notice on ILS Issu- ance in HK, when a domestic insurer issues “sidecar” ILS in Hong Kong, the arrangement is treated as a reinsurance transaction. 8. Interpreting an Insurance Contract 8.1 Interpretation of Insurance Contracts and Use of Extraneous Evidence Insurance contracts in China are interpreted following the general principles of the Civil Code, yet they are subject to strict special rules. Under Article 142 of the Civil Code, the interpretation of a declaration of will to a specific addressee shall rely on the terms used,
fully answer the insurer’s enquiries; beneficiaries have no independent disclosure obligation, even if they are unnamed or later identified. Any non-disclosure is assessed solely by reference to the insurance appli- cant’s conduct. Thus, third-party beneficiaries do not modify or expand the disclosure regime at the con- tract formation stage. 6.6 Consumer Contracts or Reinsurance Contracts Under PRC law, the core insurance contract rules discussed previously do not change for consumer insurance contracts, though they operate differently in the reinsurance context due to separate regulatory provisions. For consumer insurance, the Insurance Law applies uniformly. There is no statutory rule creating different formation requirements, different insurable-interest rules or a different disclosure framework. The enquiry- based disclosure system established by Article 16 applies in the same way to consumers and to com- mercial insureds. Courts sometimes apply stricter scrutiny to insurers’ conduct, especially regarding the duty to explain liability-limiting clauses (Insurance Law, Article 17) and clarity of enquiries, based on the PRC Consumer Rights Protection Law and SPC inter- pretative principles. However, all mandatory terms under Article 18 of the Insurance Law, written-form requirements under Article 11, and beneficiary rules under Articles 23 and 55 equally apply. However, several rules differ for reinsurance. Rein- surance is still subject to the Insurance Law, but the Measures for the Administration of Reinsurance Busi- ness impose expanded disclosure obligations on the ceding insurer. Unlike primary insurance where dis- closure is limited to insurer enquiries under Article 16, reinsurance requires the cedent to provide complete, accurate and timely risk information, including materi- al changes during negotiations, regardless of whether the reinsurer has asked. This constitutes a broader duty of transparency, reflecting the professional nature of reinsurance.
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