Tighter scrutiny on insurers' offshore financing activities

China intends to scrutinize insurers’ overseas funding activities more stringently, according to a latest joint notice by the nation's insurance and foreign exchange regulators.

Insurance companies must ensure that their outstanding overseas loans under domestic guarantee should be not more than 20 percent of their assets as of the end of the last quarter under a new policy. 

Overseas loans under domestic guarantee are basically credit mainly aimed at domestic enterprises to help them bid for international contracts and provide funding for them to make foreign investments.

The Insurance Asset Management Association of China must assess insurance companies if their offshore funding activity backed by domestic guarantee exceeds US$50million, according to the joint notice from the China Insurance Regulatory Commission and the State Administration of Foreign Exchange.

Insurers who want to conduct a warranty loan business have to ensure their solvency adequacy ratio shall not be less than 150 percent as of the end of last quarter, the notice said.

Malpractices like foreign exchange fraud and transferring assets abroad in the name of overseas financing are forbidden as are any arbitrage or illegal speculative transactions.

Insurance companies must carry out comprehensive due diligence on the invested projects and to strictly enforce the nation's policy on overseas investment.

XXX

China is put tighter scrutiny on the insurers’ overseas funding activities, according to a latest notice jointly published by the top insurance and foreign exchange regulator.

The new policy requires that the insurance companies’ outstanding overseas loan under domestic guarantee shall be no more than 20 percent of their net assets as of the end of last quarter.

Overseas loan under domestic guarantee is a kind of credit service mainly for domestic enterprises to bid international contracts and provides funding for them to make foreign investments.

Insurers must report to the Insurance Asset Management Association of China for assessment if the offshore funding activity backed by domestic guarantees exceeding US$50million, according to the joint statement from the China Insurance Regulatory Commission and the State Administration of Foreign Exchange.

The regulators call for better risk control from the insurance companies and asked them to operate the business in accordance with the principle of assets and liabilities management.

For insurers’ who want to carry out the warranty loan business, their solvency adequacy ratio shall not be less than 150 percent as of the end of last quarter, the notice said.

The statement forbids malpractices like foreign exchange fraud and assets transfer abroad in the name of overseas financing. Any arbitrage or illegal speculative transactions are also banned.

Insurance companies are required to carry out comprehensive due diligence on the invested projects and to strictly enforce the state's policy concerning overseas investment.