CIRC Allows Interest Rate Exchanging Among Insurance Agencies

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Jul. 30 – The China Insurance Regulatory Commission (CIRC) recently issued a notice regarding insurance agencies engaging in interest rate exchanging. According to the notice, the number of agencies that can develop the interest rate exchanging business as derivatives has been extended to the entire industry.

Baojianfa [2010] No. 56, issued on July 20, stipulates that insurance agencies should develop interest rates only for hedging purposes, and not for speculative trading or to enlarge transactions. Also, the counterparty of the transaction should comply with the insurance sector regulatory requirements.

According to the notice, the nominal principal of an insurance agency engaged in interest rate exchanging shall not exceed 10 percent of the agency’s fixed income assets at the end of the last quarter, and the nominal principal with the same counterparty shall not exceed 3 percent of such fixed income assets. The fixed-income assets above include bank deposits, bonds and other debt types of investment instruments.

Furthermore, the notice also stipulates that insurance agencies who want to develop their interest rate exchanging business should have the ability to reach the risk management standards; meet the requirements of the classification regulation; have a sound risk management system; build the appropriate business processes and risk management and control systems; and meet the market business requirements and other requirements prescribed by the CIRC.