Laws of the People's Republic of China

Opinions of China Insurance Regulatory Commission on Intensifying Insurance Fund Risk Management

October 31, 2006

Each insurance company and each insurance asset management corporation:

For the purpose of implementing "Some Opinions of the State Council on Reforming and Developing the Insurance Industry" (hereinafter referred to as "Some Opinions"), setting up and improving the risk management system and operation mechanism of insurance funds, conscientiously preventing risks of the insurance fund management, and promoting the insurance industry to develop rapidly and smoothly, the opinions are hereby set forth as follows:

1.

Unifying the understanding, enhancing the awareness, and intensifying the overall risk management.

In recent years, the insurance industry earnestly implemented the guidelines and policies of the Party's Central Committee and the State Council, actively participated in the implementation of significant state strategies, constantly accelerated the speed of the insurance business's development , enlarged the insurance fund scale, and propelled insurance fund management to go into a new stage of development. Through the whole industry's arduous efforts, the insurance fund management has been changed profoundly, the reform of the system has undergone a great breakthrough, the institutional construction has been continuously improved, the operational mechanism has been gradually perfected, the investment channels have been gradually broadened, and the investment income has been steadily increased, As a result, the financial reform has been powerfully supported, the economic development promoted, and the status of the insurance industry in national economic and social development effectively heightened.

With the deepening of the financial reform, there are more and more risk factors in insurance fund management, the cross-market and cross-industrial risks have begun to infiltrate and be forwarded to the insurance industry, and some risks might become systematic risks, on which insurance institutions must place great stress. The insurance fund management in China starts late, the building up of basic systems lags behind, the mechanism of the internal control is weak, the phenomena of stressing investments and ignoring internal control as well as stressing income and ignoring risks widely exist, and the operations breaking rules frequently occur. Such facts have become serious potential threats to the insurance fund safety, and must be earnestly resolved.

The insurance fund management is the lifeline of preventing the insurance industry from risks, and is also an important content and key link to intensify the whole industry's risk management. Insurance institutions shall carefully implement "Some Opinions", and shall, from the overall and strategic height, unify their understanding and awareness, intensify risk consciousness, and promote the sense of responsibility and sense of urgency in the improvement of the insurance fund risk management. They shall perfect the bylaws, improve the mechanism, regulate the operation, intensify disclosure, evaluate the risks insurance fund management in a scientific way by adopting new methods and using new means, and construct a new risk management system of all-round coverage whole-process management, and all-staff participation gradually.

2.

Specifying the objective, fulfilling tasks, and establishing a new management system.

Within a period in future, insurance institutions shall place the building up and improvement of the system of insurance fund risk management and the prevention of operational risks in insurance fund management on an important position of the management work, and make them become a "roll booster" and "safety net" to promote the rapid development of the insurance industry.

The guiding ideology of improving insurance fund risk management: To implement the view of scientific development in an all-round way according to the requirements of "Some Opinions", and by regarding the maintenance of the immediate interests of insurance parties as the fundamental task, regarding serving economic development and the whole society as the starting point, and regarding strengthening the building up of capacities of managing insurance fund risk as the emphasis, continue strengthening the building up of basic systems, propel the reform of management system, establish a management mechanism under which assets are matched with liabilities and risks are matched with income, propel the mode of risk management to be converted from passively preventing into actively controlling, and realize the fundamental transformation of the management mode of insurance funds steadily.

Working objective of strengthening insurance fund risk management: To set up a scientific philosophy of overall risk management, build up a rigorous organizational system of risk management, improve the operation mechanism of risk management, further ameliorate techniques of risk management, eliminate accumulated risks gradually, keep significant risks within limits effectively, construct a fund risk management culture of insurance characteristic, establish brand advantages of insurance fund risk management, make risk management on the use of insurance funds become insurance institutions' important profit source, and continuously enhance the insurance industry's the core competitiveness.

Major tasks of propelling insurance fund risk management: To strengthen the institutional construction of corporate governance and internal control, construct an organizational framework of risk management with clear duties, rational work division and balanced powers, completely regulate the operation flow of the insurance fund management, and improve the significant emergency responding mechanism of insurance fund management. To steadily carry out the trusteeship system of insurance funds, determine the basic duties of the entrusting parties, entrusted parties, trustees and other parties of insurance funds as well as the legal relationships among them. To further practice compatible management of assets and liabilities, improve the risk management methods, optimize the system of information technology, strengthen the monitoring means of risk, and enhance the capacities of managing insurance fund risk. To improve the investigation mechanism of liability, punish commercial bribes severely, enhance the managers' quality, and prevent risks of management and operation.

3.

Reforming the system, improving the mechanism, and constructing a risk management framework.

To improve the organizational framework is an important basis of strengthening insurance fund risk management. Insurance institutions shall, according to their own development strategies, further straighten out the management relationships of insurance funds, optimize the corporate governance structure, and construct a long-term effective mechanism for insurance fund risk management on the basis of the principles of specialty and systematism.

Speeding up reforming the management system of assets. Insurance companies shall continue propelling professional management, improve the operation mode, establish a system of concentrative fund management of uniform dispatchment, centralized utilization and full-process monitoring, practically fulfill the duties of strategic asset allocation, investment monitoring and performance evaluation, etc. They shall, in accordance with the related provisions of the state, sign trusteeship agreements with related commercial banks, clarify both parties' duties, entrust banks to handle the affairs such as trusteeship of assets, clearing, delivery, asset valuation, and investment supervision, and so on, and steadily carry out the third-party trusteeship of insurance assets. Insurance asset management companies shall actively introduce domestic and overseas strategic investors, improve corporate governance, strengthen the building up of internal control, regulate the operation acts, prevent management risks by using international management experiences as reference, and shall manage the trusteeship assets and improve management efficiency under laws, regulations and the contract.

Constructing a risk management organizational structure. Insurance institutions shall, in light of the "Guiding Opinions Concerning the Regulation of Insurance Corporate Governance", further clarify the duties of the board of directors, the board of supervisors and the management staff, regulate the management procedures strictly, establish and improve a mechanism under which the power of the management decision-making, operation and supervision of insurance funds are separated from and balanced by each other; they shall strengthen the building up of board of directors, specify the board of directors' final liabilities for the investment policies, risk control and lawful management. They shall set up the independent director institution, intensify the duties of independent director, reinforce the board of directors' independence, and improve the scientificalness of the decisions; the board of directors shall establish an internal investment decision-making committee and a risk management committee, with the investment decision-making committee mainly bearing the responsibility of ratifying the strategic asset allocation and the investment strategies and determining significant investment matters, and with the risk management committee mainly bearing responsibilities of ratifying risk management bylaws and basic strategies, and of supervising and evaluating the implementation of risk management. The board of supervisors shall supervise the fund management acts of the board of directors and the management staff in accordance with the laws, administrative regulations and relevant provisions of CIRC.

Each insurance company shall set up a professional management support system, establish a special asset management department to be responsible for drafting asset management policies and adjusting strategic asset allocation, working out investment management guidelines, select a professional management institution on the basis of the market-based principle, and establish an assessment mechanism of the professional management institution's performance. Each insurance fund management corporation shall establish an independent risk management department to be responsible for drafting risk management bylaws, identifying, evaluating, controlling and managing various risks, and regularly reporting the risk management situation.

Each insurance asset management corporation shall set up a chief executive officer in charge of the risk management to report the related information to the board of directors regularly, prevent and eliminate significant risks in a timely manner. As to any significant potential risk threat, he shall report to the insurance regulatory authority in a timely manner. The chief executive officer in charge of the risk management shall not hold the position of chief executive officer in charge of the investment management or the senior manager in charge of investment management concurrently. The employment and change of the chief executive officer in charge of the risk management shall be reported to CIRC.

4.

Strengthening internal control, detailing the flow, and regulating risk management acts.

To intensify internal control of companies is an important measure to strengthen insurance fund risk management. The insurance institutions at all level shall build up the guiding ideology of "giving priority to internal control" firmly, work out fixed rules, operate the business under laws and rules, rigidify financial and accounting disciplines, and prevent risks of fund management.

Strengthening the building up of the internal control system. Insurance institutions shall proceed with compatibility of responsibilities, decision making of investment, implementation of orders, transaction operation, management and control of risks, and information disclosure, etc., completely amend and improve internal rules and bylaws, intensify advance prevention, in-process monitoring and post-affair management, regularly inspect and evaluate the implementation of the internal control bylaws, and exert the supervisory functions of internal and external audit, so as to ensure the independence, validity and continuity of the audit work on the basis of the principles of "clearly dividing the work duties, being independent and balanced".

Detailing the investment operation flow. Insurance institutions shall work out the operation flow of fund management, clarify each link of the flow, the way of connecting related positions and the operational standards, so as to make it cover the whole process containing research, decision-making, trading, clearing, risk control and performance evaluation. They shall clean up and disclose the significant asset management risks, divide the positional duties of the front office, middle office and back office of investment business strictly, work out effective measures for preventing and controlling risks, so as to make the risk evaluation conducted before the investment trading. All staff members must lawfully operate, and not violate the procedures.

Establishing a responding mechanism of management emergency. Each insurance institution shall carefully implement the "Provisions for the Insurance Industry to Respond to Significant Emergencies", set up a emergency responding plan system of significant insurance fund management , and shall, once finding any risk symptom or significant incident which might cause fund losses, immediately start up the emergency responding mechanism, control the development of the state of affairs, make a report to the management staff in a timely manner, urge the related department to make a rectification as soon as possible, and make a report to CIRC to specifically state the incident's background, the disposal situation and the possible consequences.

5.

Improving technologies, developing the system, and enhancing risk management capacities.

To improve techniques of risk management is an important measure to enhance insurance fund risk management. Insurance institutions shall, according to their own situation, speed up introducing techniques of risk management and experiences of mature markets, carry out the management of compatible assets and liabilities, improve the technical support system, and propel the transformation of the risk management from qualitative management into the combination of qualitative management and quantitative management.

Implementing the asset-liability management. Insurance companies shall set up a management mechanism of compatible assets and liabilities, improve the management system of insurance products by special asset accounts, and determine the best asset management combination based on the insurance products' different liability features. Insurance companies and insurance asset management corporations shall intensify the linkup of investment products with insurance products, and set up a mechanism for coordinative operation of product design, market sale and investment management. Insurance asset management corporations shall participate in the early design of insurance products, exert asset management specialties and know about the other markets' advantages, as well as assist insurance companies in developing new-type insurance products, and further prevent pricing risks of insurance products. They shall lay stress on tactical allocation and combined management to manage the entrusted assets elaborately, and practically prevent the risk of wrong allocation of assets, according to the requirements of strategic allocation of insurance assets strictly.

Improving techniques of risk management. Insurance institutions shall use effective management methods of risks actively, establish scientific monitoring indices of risks, by making use of such instruments as risk value, scenario analysis and stress testing, and so on, to conduct the appraisal, pre-warning and monitoring of the policy risks, market risks, credit risks and liquidity risks of investment management, so as to realize the early finding, reporting, controlling and resolving of the risks. They shall strictly implement related laws and management provisions of and insurance fund, establish a risk budget system of fund management, reasonably determine directions and proportions of investment, operate within the risk limits, and avoid being involved in great-risk investment business or investment business beyond their own management or capacity of risk control.

Improving the management system of information. Insurance institutions shall gradually construct a sound management system of information, strengthen the building up of the technology support system of information, regulate systematic development, operation and management, and enhance the level of asset risk management. Each insurance institution shall establish an all-round risk management database, collect and integrate the basic information on the insurance market and other markets, made a record of the original data of insurance fund management and investment trading, solidify all factors of risk monitoring into related system of information technology, and reduce human elements to a maximum extent to reduce operational risks.

6.

Clarifying duties, intensifying management, and rigidifying the mechanism for the liability investigation.

To strictly carry out the accountability system is an important guaranty for strengthening the insurance fund risk management. The insurance institutions at each level shall lay great stress on educating employee and conducting occupational trainings, build up the concept of lawful and complied management, and constantly improve all-level managers' working quality and occupational morality.

Specifying the duties of the risk management. Insurance institutions shall, according to the principles of investing and bearing risks independently, bear all liabilities in terms of fund management, risk control and investment operation, and so on. The regulatory authorities shall strengthen the building up of basic systems, loose no time to work out the related rules, make a rigid market access, regulate the operational acts, conscientiously perform supervisory duties, create a fair, just and open market environment in which duties are clear, and set up an active, steady and orderly market order.

Conscientiously preventing moral risks. Insurance institutions shall set up management mechanisms for the observation, appraisal, supervision and encouragement of investment managers, improve the system of report on work, and assess the operational performance, management capacities, occupational ethics and behaviors of the managers within their service term, and the implementation of duties thereof. Insurance institutions shall apply the post-leaving audit system to both senior asset managers and the staff members on important positions strictly, implement the commitment system on combating commercial bribes, strictly prohibit establishing off-the-book accounts privately, and shall not accept or pay commission in any name or in cash. The related fees lawfully charged for fund management shall, according to the principles of publicity, transparency and lawfulness, be transferred through bank accounts, so as to earnestly maintain the social images of honesty, credibility and legality of insurance institutions.

Establishing a mechanism for liability investigation. Insurance institutions shall regularly conduct supervision and inspections of insurance fund risk management, find out and eliminate the weak points, fatal parts, and risks of major business and important persons in a timely manner, endeavor to check incidents in violation of any law or rule, resolve the existing problems in a timely manner, and report to CIRC.

Insurance institutions shall carefully implement the management policies of insurance funds, and severely punish the acts violating any law or rule in light of the related laws and regulations. With regard to any matter violating any law or rule, no matter whether causing any loss or not, they shall find out the cause completely, and investigate the liabilities of related persons and leaders strictly. Senior managers of insurance institutions must be dismissed and replaced, instead of holding a position at the same level at a different locality if they are involved in insider trading or other investment acts breaking rules, or shall be transferred to the judicial organ and be subject to criminal liabilities under law if they have committed a crime.