SELF-DISCIPLINE ON CON-DUCTING POLICY LOAN BY LIFE INSURANCE ENTERPRISES

03/01/2009

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The Life Insurance Association of the Republic of China ("LIA") reported to the Financial Supervisory Commission ("FSC") that LIA has adopted by resolution the Self-Discipline on Conducting Policy Loan by Life Insurance Enterprises ("Self-Discipline Rules"), and the FSC recorded the same on November 14, 2008.  The main points are summarized as follows:

 

	Ÿ	A life insurance company must comply with the Self-Discipline Rules when granting policy Loan.  "Policy Loan" means a policyholder places her/his policy as pledge for a loan from her/his underwriting life insurance company, within the amount of the policy value or the policy account value at the time, in accordance with the terms and conditions under the underwritten policy.  (Articles 1 and 2)
	Ÿ	A life insurance company must, in compliance with the Regulations Governing Disclosure of Information by Life Insurance Enterprises, post on its website the terms and conditions for policy loan and the determination of interest rates, and prepare and make available printed version of the foregoing for public review at its headquarters, branches and liaison offices, or furnish computer equipment at the aforementioned locations open to the public to access and download digitized version of such content.  (Article 3)
	Ÿ	For policy loan, a life insurance company must provide the policyholder with an application form, together with notices of material matters to be reviewed by such policyholder, and the application may be processed with consent of the foregoing signed off personally with the signature or seal by the policyholder.  The application form for policy loan must include all the required items under the Self-Discipline Rules.  (Article 4)
	Ÿ	A life insurance company must comply with the following principles:
		1.	It shall not mislead or use mis-selling tactics to persuade policyholders to purchase a new policy by means of policy loan.
		2.	It must reach agreement with the policyholder in regard to how to determine the interest rates, calculation of interest rates and disbursement method.
		3.	It must comply with the Civil Code where compound interest applies, meaning accumulated interest for the policy loan is added back to the principal so that interest is earned on interest from that moment on policy loan; provided, however, that each life insurance company may adopt other approaches which are more favorable to the policyholder.
		4.	In the event that the interest rate of policy loan is required to be adjusted due to change of regulations or market conditions, it must disclose such adjustment and calculate the interest based on the adjusted rate from the date of disclosure.
		5.	In order to avoid the scenario where the loan amount applied by the policyholder, together with the interest, exceeds the full amount of the policy value or the policy account value on the day following the policyholder's application, which will result in a suspension of the insurance contract, each life insurance company may reach agreement with the policyholder on the limit of loan extension.
		6.	When the unpaid amount of principal and interest of the policy loan exceeds the amount of the policy value or the policy account value, it must notify the policyholder according to the manner agreed upon in the policy to repay such unpaid amount.  The insurance contract will be suspended or terminated upon written notice when the policyholder fails to make the payment due.
		7.	It must comply with the Computer Processing Personal Data Protection Act in respect of basic information provided by the policyholder to apply for policy loan. (Article 5)
	Ÿ	A life insurance company must establish a control system for business in policy loan, must incorporate the Self-Discipline Rules into its internal control and audit system, and must comply with the Regulations Governing Implementation of Internal Control and Auditing System of Insurance Enterprises.  (Articles 6 and 8)
	Ÿ	A life insurance company must be jointly and severally liable for damages incurred by its employees and solicitors (agents) by any willful or negligent conducts which consequently affect the rights and interests of policyholders.  (Article 7)