China: CIRC to restrict related-party transactions
Source: Asia Insurance Review | May 2015
To prevent unwarranted transfer of benefits and risks among related companies, CIRC will restrict related-party transaction for insurers.
Among several measures in the circular issued by the regulator, the new rules place a cap on related-party investments of 30% of the firm’s total assets at the end of the previous quarter. Such investments should also not exceed the value of the net assets of the insurer at the end of the previous quarter.
Any investment in a single related party should not exceed 15% of the insurer’s total assets or 5% of the related party’s total assets at the end of the previous quarter, whichever is greater. Insurers, with investments which exceed the limits stipulated, should not carry out any more transactions that would increase such holdings. Insurers also have to submit quarterly reports on related party transactions and balances to the CIRC with effect from this quarter.
In recent years, with the widening of investment avenues for insurance companies, transactions between insurers and connected parties have increased. Some small and medium-sized insurers have a higher proportion of related-party transactions. For them, these are also more concentrated on a few related parties. The rules by CIRC are to ensure that related-party risks are managed.