Global Regulatory Update: Developments In The Insurance Markets - February 2011

FOREWORD

Developments in the global re/insurance markets

Talking to clients and contacts, there is no doubt that the next couple of years will be about the emerging markets. The comparatively low insurance penetration in countries such as China, India and Russia coupled with a growing consumer class, increased foreign direct investment, infrastructure development and an increased awareness of catastrophe exposure, present a huge opportunity for insurers to extend their reach into new territories.

Given the size of the potential market, it is probably not surprising that China is the territory in which the underwriting and broking community appear to be most interested. It is already the sixth largest insurance market in the world, with $133.5 billion in premium for the first half of 2010. When we talk to clients, they say that Latin America is almost as popular. Since the opening up of the Brazilian market two years ago, 70 reinsurers and 8 Lloyd's syndicates have entered the market. However, recent changes to the reserving requirements for reinsurers have removed some advantages, so competition issues are a key area of concern.

A guiding hand

Understanding this industry inside out is what makes the Clyde & Co's insurance and reinsurance practice a world leader. More than 70 partners work solely on insurance related matters and our depth of understanding covers all types of claims, corporate and regulatory advice. With clients all over the world involved in every sector of the industry, we have both a local knowledge and global experience of worldwide development and trends.

Following on from our successful Going Global Seminar last September, we have received requests for further regular updates for more information in relation to insurance-related matters. As a result, we have put together the attached bulletin highlighting some of the major issues that may impact clients in the conduct of their insurance business around the world.

David Coupe Partner

CHINA

By Ik Wei Chong and Carrie Yang

In 2010, the Chinese insurance regulator - The China Insurance Regulatory Commission ('CIRC') - issued the following key regulations and rules:

Provisions for the Administration of the Qualifications of Directors and Senior Management Personnel of Insurance Companies

Issued on 8 January 2010 and coming into effect on 1 April 2010, these provisions were aimed at enhancing the CIRC's regulatory authority over the qualification and appointment of executives in insurance companies, increasing the standards for qualification, and improving the rules on constant supervision of executives after their appointment.

Measures for the Administration of the Insurance Terms and Insurance Premium Rates of Property Insurance Companies

Announced on 5 February 2010, effective as of 1 April 2010, these measures prohibit insurance companies from altering the duly filed insurance terms and premium rates, revise the supervisory mode for regional insurance products, and enhance the requirements relating to internal control systems and Legal Liability Persons of insurance companies.

Provisions on the Basic Services of Personal Insurance Business

Announced on 11 February 2010, effective as of 1 May 2010 these provisions set out standards and requirements in relation to the telephone services, client-visits and claims settlements by personal insurance companies, and demand that insurers set up adequate mechanisms to safeguard the privacy and confidential business information of these assureds.

Measures for the Administration of the Equities of Insurance Companies

Announced on 4 May 2010, effective as of 10 June 2010, these measures clarify and increase the entry requirements for shareholders of insurance companies, enhance the supervision on majority shareholders (i.e. whose shareholding exceeding 15%), elaborate on the filing and approval requirements in relation to share transfers or acquisitions of an insurance company, provide a certain degree of flexibility for the upper limit of the shareholding of one shareholder, as well as provide for the first time in the areas of horizontal competition, the listing of insurance companies, shareholder information disclosure and so on.

Measures for the Administration of the Information Disclosure by Insurance Companies

Announced on 12 May 2010, effective as of 12 June 2010, being the first-ever CIRC regulation on information disclosure, it provides specific requirements as to the scope, method and frequency of information disclosure.

Provisions for the Administration of the Reinsurance Business

Announced on 21 May 2010, effective as of 1 July 2010, these provisions abolish the restriction which requires a Chinese insurer to offer at least 50 per cent of the amount to be reinsured to licensed domestic reinsurers first. These provisions also clarify the rule regarding the reinsurance cap in each risk unit, make new provisions on the reinsurance brokers' conducts, impose stricter requirements on direct insurers to disclose information on reinsurance arrangements and especially on foreign-invested insurance companies' intra-group reinsurance transactions. These provisions put in place harsher punishments on the relevant managing personnel who fail to handle reinsurance business compliantly.

Tentative Measures for the Administration of the Use of Insurance Capital

Announced on 30 July 2010, effective as of 31 August 2010, these tentative measures expand the investment channels of insurance capital to include real property and equities, set out the prescribed ratio for each allowed channel, prohibit insurance companies from investing in certain areas such as real property development and venture capital investment, as well as prescribe corporate governance changes for insurance companies in order for them to monitor investments more effectively.

The following three regulations support the tentative meaures:

Circular on Issues Relevant to the Revision of the Investment Policies of Insurance Capital Announced on and effective as of 31 July 2010, this elaborates on the...