Laws of the People's Republic of China

Circular of the China Insurance Regulatory Commission concerning the Intensification of the Risk Management of Short-term Financing Bonds

Bao Jian Fa [2006] No. 82

Each insurance company and insurance asset management company:

In recent days, a certain company is suspected of the rule-breaking loaning of a huge amount of capital and may result in the initiation of the risk of short-term financing bond repayment. In accordance with investigation, it is found that some few insurance companies are holding the short-term financing bonds of the said company. For the purpose of intensifying the risk management of short-term financing bonds and dissolving the credit risks of the different varieties of trade products, we hereby notify the related issues as follows:

1.

Each insurance institution shall instantly implement the verification of the quantity of high-risk short-term financing bonds and find out whether any debtor-creditor relationship exists between themselves and the said high-risk company. For the purpose of avoiding any asset loss, an insurance institution that holds any of the high-risk short-term financing bonds or has any debtor-creditor relationship with the high-risk company shall adopt prompt and effective measures and formulate a reserve plan of risk settlement.

2.

Each insurance institution shall strengthen its internal credit appraisal system and make incessant improvement to the credit appraisal mechanism. We shall supremely concern with all the rating institutions whose rated bonds suffer credit risks, re-examine their appraisal capability of credit rating, employ the general rating standards as well-accepted by the market to examine all the securities products as appraised by the related rating institutions, and adjust the internal rating as quickly as possible.

3.

For the purpose of reacting quickly and adopting proper measures, each insurance institution shall implement an overall appraisal on the credit risks in the short-term financing bonds that they have invested in, make an in-depth analysis on the market risks, sort out the securities for which the related appraisal is distorted and the credit rating is falsely high, further optimize the investment credit structure and constantly follow up the market risk.

4.

Each insurance company shall take this event as a reference and do a good job in the risk prevention work. At the present time, an insurance institution that holds any of the high-risk short-term financing bond or has any debtor-creditor relationship with the mentioned high-risk company shall, before August 4, 2006, report the related investment, containing the process of decision-making of investment, the result of internal credit rating as well as the reserve plan of emergencies, to the Capital Supervision Department of the China Insurance Regulatory Commission.