On 26 August 2011, CIRC issued the Interim Administrative Measures on the Transfer of Insurance Business by Insurance Companies (CIRC Notice  No. 1) (Interim Measures). The Interim Measures are largely in the same form as the draft Interim Measures issued for public consultation by CIRC on 22 March 2011. They are brief (just 20 articles) and provide a basic legal framework for the regulation of the transfer of insurance businesses in China.
Prior to the introduction of the Interim Measures, the Insurance Law of the PRC only envisaged the transfer of business by an insurance company where it was declared bankrupt or had its insurance business permit cancelled. The Interim Measures now provide a basic framework for the voluntary transfer of all or part of the insurance business of an insurance company. CIRC plays an active role in approving and regulating any such transfer, with protection of the rights of policy holders, insured persons and beneficiaries being the guiding principle.
The Interim Measures only apply to such voluntary transfers and do not apply to transfers mandated by law or by regulatory bodies, for example in the case of insolvency. Further, the Interim Measures do not apply to transfers of reinsurance business.
The transfer of all or part of an insurance company’s insurance business must be approved by CIRC. The Interim Measures state that the criteria for what constitutes ‘part of an insurance business’ will be specified separately by CIRC (there is no indication when CIRC will issue such criteria). These will be important criteria as they will indicate the feasibility of transferring insurance portfolios between insurance companies in China.
The parties to the transfer must engage lawyers, accountants and other professional advisors to assess the value of the transferred business, state of compliance, and other matters. The reports of such advisors must be included in the supporting materials submitted to CIRC for approval.
In addition, the parties must assess the liability reserves and ensure that they are adequate and reasonable in accordance with the relevant CIRC regulations. A report in relation to the adequacy of liability reserves must also be provided to CIRC. The adequacy and reasonableness of liability reserves are determined in accordance with various other laws and CIRC regulations, including the Notice of the China Insurance Regulatory Commission on Implementing the Administrative Provisions on the Solvency of Insurance Companies (CIRC  No.89).
The Interim Measures require the parties to enter into an “insurance business transfer agreement”. This agreement will set out the rights and obligations of the parties to the transfer, and it will be examined and approved by CIRC.
Interestingly, the drafters of the Interim Measures believed it necessary to include a provision emphasising the confidentiality obligations of the parties to transfer of an insurance business. The Interim Provisions state that “an insurance company shall not disclose without authorization any commercial secrets or private information to which it has been given access during the transfer process”.
After obtaining CIRC approval, the transferor must provide written notification to policy holders and insured persons (or beneficiaries in the case of death of such insured persons) advising them of relevant details of the proposed business transfer including basic information about the transferee insurance company, the plan for the transfer itself and information on the assumption of liabilities.
In addition, the transferor is required to obtain consent from policy holders and insured persons (or beneficiaries in the case of death of such insured persons) for the transfer. This is one of the most controversial aspects of the Interim Measures, as it would be a huge undertaking to obtain individual consents from all policy holders, insured persons and beneficiaries of a large portfolio. It remains to be seen whether CIRC will enforce this provision strictly, or whether it will show some flexibility (as it has in the case of merger of insurance companies) and accept an “opt-out” option with deemed consent by all parties that do not respond (by giving their consent or opting-out) within a certain period, provided that all other conditions for the transfer have been satisfied.
The parties to the transfer must make joint public announcements in newspapers nominated by CIRC at least three times. The parties must also make announcements on their respective websites for a period of no less than one month.
The Interim Measures stipulate that any proposed transferee insurance company shall satisfy the following qualification requirements:
The Interim Measures also regulate various matters which are relevant after approval has been obtained from CIRC and the transfer effected.
The fundamental obligation of a transferee insurance company is that it must assume all the obligations to policy holders, insured persons and beneficiaries as contained in the original insurance contracts.
Other obligations are more administrative in nature. For example, an insurance company that transfers the whole of its insurance business must, within 15 business days of completion under the transfer agreement, apply for cancellation of its insurance business permit and business licence with CIRC and the State Administration for Industry and Commerce. An insurance company that transfers only part of its business must update its permit and licence within 15 business days of completion of the transfer.
The Interim Measures provide a formal legal framework pursuant to which insurance companies can now transfer part or all of their insurance business. This is an important step forward in the insurance industry in China and in addressing increased demand in the insurance market for mergers, acquisitions and restructuring of insurance businesses.