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Reinsurance Rules Tighten in China                                                              November 2005 – Issue 10

New rules for reinsurance in China will replace the current compulsory
reinsurance cession to China Re (five percent of every risk written) but will keep
a higher percentage of reinsurance share and premium in China. Beginning
December 1, 2005, at least 50 percent of all permitted reinsurance must first
be offered to locally licensed reinsurers. Foreign insurers operating in China will
not be permitted to reinsure any share to affiliated companies without prior
approval by government regulators.

There are currently six locally licensed “professional reinsurers” in China: China
Re, PICC Property & Casualty Re, China Life Re, Munich Re, Swiss Re and
General Cologne Re.

The new regulations will apply to both facultative and treaty reinsurance. The
changes are likely to affect controlled master programs, insurance captives and
locally fronted global programs. The limitations on exportable reinsurance may
mean a substantial loss of business for insurers without the appropriate license
in China. Affected parties should contact their insurance and reinsurance
advisers to explore the impact these moves may have on their programs and
coverage strategy.

Highlights of the New Rules                        should not exceed 80 percent of the
                                                   original sum insured or limit of
• When arranging treaty reinsurance and            liability.
  facultative reinsurance, direct insurance     – The reinsured amount of any one risk
  companies must first approach                    to an affiliated reinsurance company
  companies within People’s Republic of            of the original proposer by any one
  China (PRC) according to the following           facultative contract should not exceed
  stipulations:                                    20 percent of the original sum insured
   – Offers should be sent to at least two         or limit of liability.
      professional reinsurance companies      • Local foreign insurance companies are
      within the territory of PRC.              not allowed to transact reinsurance
   – Total shares offered must not be lower     business with their affiliated companies
      than 50 percent of the total              unless otherwise approved.
      reinsurance requirement.
• Except for Aviation, Nuclear, Oil and       Other Notable Excerpts
  Credit insurance, direct insurance          • Insurance brokers engaged in reinsurance
  companies arranging treaty reinsurance        broking must not impair the reputation or
  and facultative reinsurance must comply       legitimate rights and interests of
  with the following stipulations:              insurance companies.
   – The reinsured amount of any one risk     • Brokers may introduce and design
      to a single reinsurance company           reinsurance contracts.

                                                                                            Willis International • November 2005
• Brokers must handle account statements and invoices along
  with any other duties according to their agreements with
  ceding companies. Brokers must not misappropriate or
  withhold reinsurance premiums, claims recovered,
  reinsurance commissions or expenses recovered.
• At the request of reinsurance companies, reinsurance brokers
  shall, according to their agreements with ceding companies,
  notify reinsurance companies of the retentions of their ceding
  companies and other circumstances relating to direct
• At the request of ceding companies or reinsurance
  companies, brokers may assist in the claims handling process.

Regulations for Chinese and Foreign
Companies Operating in China                                                                       Contacts
Before 1 December 2005                                                                             For additional information,
                                                                                                   contact your local Willis office or:
                                    (100%) Local Policy

                                      5% to China Re                                               Howard Tsang
                                                                                                   Willis International
    95% minus local insurer's retention can be reinsured to reinsurers outside of China            7 Hanover Square
                      (including master policy and captive insurers).                              New York, NY 10004
                                                                                                   Tel: 212 837 0641
After 1 December 2005                                                                              Fax: 212 344 2780
                                    (100%) Local Policy

                                                                                                   Bryan Dorner
                                                                                                   Willis Pudong Insurance Brokers
    If local policy is issued by                               If local policy is issued by
                                                                          foreign insurers         11/F International Ocean
    domestic insurers:
                                                          (Foreign companies operating             Shipping & Finance Center
                                                         in China cannot reinsure share            720 Pudong Ave.
                                                   back to an affiliated group company             Shanghai, PRC
                                                           without prior CIRC approval):           Tel: 86 21 5036 6298 ext. 292

              At least 50% of any reinsurance requirement (treaty/facultative)
                must be offered to at least two of the following reinsurers:
             • China Re
             • PICC Property & Casualty Re
             • China Life Re
             • Munich Re
             • Swiss Re
             • General Cologne Re

    Balance (100% minus what is accepted by reinsurers, minus local insurer's retention),
                     can be reinsured to reinsurers outside of China.

                                                                                              2 Willis International • November 2005

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