Laws of the People's Republic of China

Letter of Reply of the China Insurance Regulatory Commission concerning Related Legal Matters on Archival Filing of Bonding Insurance Clauses

Bao Jian Ting Han [2006] No. 335

Shenzhen Insurance Regulatory Bureau:

Your Request for Letters on Related Legal Issues concerning Bonding Insurance Clauses and the Archival Filing Thereof (Shen Bao Jian Fa [2006] No. 131) has been received. Upon deliberation, our reply is hereby given as follows:

1.

Opinions on Check of Contents of the Clauses

According to the related provisions of the Customs Law, if the consignor or consignee, before the class and value of the goods are determined and the effective declaration documents are shown or other customs procedures are completed, requests the release of goods, the customs shall not release until it provides guaranty corresponding to its legal obligations. The corresponding guaranty may be provided for the consignor or consignee by a banking or non-banking financial institution through a letter guaranty.

In terms of theory of the insurance generally, bonding insurance undertakes the policy holder's liability for performance of contract, and the economic losses of the obligee (the insured) caused by the warrantee's (the policy holder's) feasance or nonfeasance are considered as the insured subject matter. However, the Bonding Insurance Clause for Vehicles and Drivers of Transport Enterprises of Hong Kong or Macao in Customs Supervision (Applicable in Shenzhen) developed by Shenzhen Branch of the China Pacific Insurance (Group) Co., Ltd, considers the customs' losses of duty or fine caused by the policy holder's failure to make up the duties or fines, etc. timely after violating the related law or regulation as the insured subject matter, and undertakes the policy holder's liability for violation of law, which does not comply with the theory on bonding insurance.

According to the Insurance Law, the policy holder shall have insurance benefit over the insured subject matter. Insurance benefit shall be the benefit recognized legally. The fines caused by illegal acts are a method of administrative penalty, with the functions of punishment and sanctions. Moreover, whether they can be regarded as a kind of insurance benefit is still to be determined through arguments.

By virtue of the aforesaid reasons, we hold that it is not suitable for insurance companies to develop or operate this kind of bonding insurance in consideration of the present legal environment and social and economic development level in China.

2.

Opinions on the Archival Filing Procedures

In the process of accepting insurance products of the archival filing class, the insurance regulatory bureau may, if finds any illegal or rule-breaking content in an insurance clause or premium rate, refuse to archive, and shall timely set forth its check opinions to the applicant.

The China Insurance Regulatory Commission

November 27, 2006