The China Insurance Security Fund (CISF), an industrial risk bailout fund derived from contributions made in accordance with the Insurance Law of the People’s Republic of China and the Measures for Administration of the Insurance Security Fund, features concentrated management and coordinated use, and serves the purpose of bailing out policyholders and policy transferee companies or resolving risks of the insurance industry. More than decade, CISF has kept growing, gradually refined its management system, and continuously intensified the security functions. It has basically experienced three stages:
1) Stage 1: Companies separately accrued the fund and deposited the fund in special account
Article 96 of the Insurance Law released and implemented in 1995 specifies that “insurance companies shall draw the insurance security fund in accordance with the provisions of the financial supervision authority to secure the interests of the insured and support prudential operation of insurance companies. The insurance security fund shall be managed in a concentrated manner and used in a coordinated manner.” This is the first general provision regarding the purpose, accrual and management of CISF.
Later, the People’s Bank of China and the Ministry of Finance released documents and specified the accrual and use of the security fund in greater detail. Article 32 of the Provisional Regulations on Insurance Administration issued by the People’s Bank of China in July 1996 prescribes that “an insurance company shall withdraw the insurance security fund at 1% of the annual premium revenue, and stop withdrawing the fund when it reaches 10% of the total assets of such company. The insurance security fund shall be separately withdrawn and deposited in a special account with the People's Bank of China or a commercial bank designated by the People's Bank of China.” In May 1997, the Ministry of Finance released the Notice on Financial Management of Insurance Security Fund of Insurance Companies, allowing the security fund to be accounted into the cost and specifying that the security fund can only be used to deposit in the four exclusively state-owned commercial banks and buy government bonds. In 1999, the Ministry of Finance issued the Financial System for Insurance Companies, governing that “an insurance company shall withdraw the insurance security fund at 1% of the retained annual premium revenue, and stop withdrawing the fund when it meets 6% of the total assets. Moreover, the insurance company shall withdraw the insurance security fund for the property insurance, personal accidental injury insurance, short-term health insurance and reinsurance, but withdraw no insurance security fund for the life insurance and long-term health insurance businesses.”
2) Stage 2: Concentrated management of special account collection and strengthening supervision intensification
The Insurance Law amended in 2002 that concrete measures regarding the use of the insurance security fund shall be formulated by the insurance regulation authority. China Insurance Regulatory Commission (CIRC) issued the Measures for Administration of the Insurance Security Fund on December 30, 2004. The Measures specifies that the security fund is classified into the security fund of property insurance companies and that of life insurance companies, CIRC shall be responsible for concentrated management and coordinated use of the fund, and the Security Fund Council shall supervise the management and use of the security fund. In March 2005, CIRC released the Notice on Issues Concerning the Payment of Insurance Security Fund, specifying that insurance companies should pay the insurance security funds they had withdrawn by the end of 2004 in two installments to the special security fund account opened by CIRC within 2005, marking the initiation of concentrated management.
The Security Fund Council was established in February 2006, with the members including related ministries, commissions and insurance companies, and was granted the mission to supervise the management and use of CISF.
3) Stage 3: Corporate operation of using the experience of other countries for reference and implementing active reorganization
Rapid development of the insurance industry in recent years has raised stricter requirements for the management and operation of the security fund. After thorough evaluation by absorbing international practices and soliciting comments from the members of the Council in 2007, CIRC suggested establishing a company and implementing professional operation of the CISF in a market-oriented manner, which was approved by the State Council. In September 2008, CIRC, the Ministry of Finance and the People’s Bank of China jointly issued the new Measures for Administration of the Insurance Security Fund, and sponsored China Insurance Security Fund Co., Ltd., which is responsible for collecting, managing and employing CISF according to the law. The Security Fund Council was automatically terminated after CISFC’s incorporation.
The Insurance Law amended in 2009 has further defined the basic principles for collection, management and employment of CISF. So far, the Chinese insurance industry has forged five lines of defense preventing and resolving risks in the insurance industry, with corporate governance and internal control as the foundation, with solvency supervision as the core, with on-site inspection as an important measure, with the supervision of fund use as a key link and with the insurance fund as the shelter. CISF will review experience and keep optimizing during the operation to exert its due functions of preventing risks in the Chinese insurance industry.