China will revise its life insurance regulations to keep in line with international practice and to meet the requirements of the World Trade Organization (WTO).
Fu Anping, deputy director with the Life Insurance Department of the China Insurance Regulatory Commission (CSRC), revealed the news on Thursday in Beijing.
According to the Insurance Law issued in 1995, the Regulation of the Insurance Company and Regulation of the Quality of High Officials in Insurance Organizations, CIRC Life Insurance Department should examine and approve branches of the insurance companies and the posts of senior management staff.
"Presently, we are discussing reforming these auditing systems, which are likely to use the supervision system geared to watch the results of high insurance managers' performance to replace the examining system which was orientated to examining them before their performance," Fu said.
Also, the regulatory organization will not have the right to prohibit insurance companies from establishing sub branches as long as the company has enough capital to settle solvency margin, and has not violated laws and regulations.
"The insurance law has strict restrictions on the capital operation of all insurers, which should be limited in the bank deposit, government and financial bonds," Fu said.
So far, the State Council has approved the idea that insurance companies can use part of the capital to buy State-owned enterprises' bonds and investment funds of the central government.
"Capital operation channels are expected to be further expanded to take full advantage of cash and to create a healthy circulation," Fu said.
Experts pointed out that the new initiatives reflect the CIRC's decision to change its function from a controller to a supervisor.
Yuan Li, deputy director with the Policy and Legal Department of CIRC, said that the government should not interfere in the economic operation of insurers, since their performances could be judged by the market and their survival or death should also be determined by the market.
"More relaxed regulation will propel the relatively fragile domestic insurance companies to involve international competition, especially after China's entry into the WTO," Yuan said.
Both Fu and Yuan said revision and reform will be in line with China's commitment to the WTO and would be made step by step considering China's current situations and the WTO's prudent principles with regards to the finance sector.
Official statistics from CIRC said there are five domestic players, three foreign-funded insurance companies and seven joint ventures in China's life insurance market to date, which are based in Shanghai, Guangzhou and Shenzhen.
The life premium revenue has increased rapidly in recent years. From 1997 to 2000, the annual rate has increased by more than 32 per cent.
During the first three quarters this year, the revenue for life premiums reached US$11.5 billion, among which, group business and individual business amounted to US$2.6 billion and US$8.9 billion respectively.
"Taking into account China's low ratio of life insurance to the financial assets and the nation's medical and pension systems reform, the market potential is unpredictable," Wang Xianzhang, general manager of China Life Insurance, the nation's No 1 life insurer, said.
He emphasized that the revision of policy and the internal reform were both crucial for domestic life insurers to survive the fierce competition after China's entry into the WTO. (China Daily November 26, 2001)