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Cablegate: Regulator Supporting Domestic Insurance Firms

VZCZCXRO0886
RR RUEHCN RUEHGH
DE RUEHGH #0451 2960156
ZNR UUUUU ZZH
R 220156Z OCT 08
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7264
INFO RUEHBJ/AMEMBASSY BEIJING 2217
RUEHCN/AMCONSUL CHENGDU 1487
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGZ/AMCONSUL GUANGZHOU 1458
RUEHHK/AMCONSUL HONG KONG 1643
RHEHAAA/NSC WASHINGTON DC
RUEHSH/AMCONSUL SHENYANG 1479
RUEHGP/AMEMBASSY SINGAPORE 0180
RUEHIN/AIT TAIPEI 1281
RUEHGH/AMCONSUL SHANGHAI 7856

UNCLAS SHANGHAI 000451

SENSITIVE
SIPDIS

TREASURY FOR OASIA-DOHNER, HAARSAGER, WINSHIP, YANG, CUSHMAN
USDOC FOR ITA DAS KASOFF, MELCHER, OCEA

E.O. 12958: N/A
TAGS: CH ECON EFIN PREL
SUBJECT: REGULATOR SUPPORTING DOMESTIC INSURANCE FIRMS

REF: SHANGHAI 419, SHANGHAI 402, SHANGHAI 399

1. (SBU) Summary. American International Group (AIG) is coming
under additional scrutiny from the China Insurance Regulatory
Commission as AIG prepares to possibly spin off parts of its
Asian insurance operations. CIRC appears to be mixing its role
as a regulator of China-based insurance companies with
intentions to support domestic Chinese insurers. While AIG has
made several accommodations for CIRC's daily reporting
requirements, these requirements continue to be burdensome. End
summary.

Regulator Supporting Chinese Firms to Purchase AIG Assets

2. (SBU) CIRC appears to have a conflict of interest in using
the information it gains from its current unprecedented access
to AIG's books, a top AIG official in Shanghai suggests. CIRC
probably is passing the information on to domestic Chinese
insurers as it offers them support for purchasing business units
AIG is considering selling, said the AIG official. CIRC
officials at a recent meeting in Beijing with AIG China
representatives were irritated that AIG was moving ahead with
initial planning for spinning off business units before
notifying CIRC, and quickly involved them in a telephone
conference call with CIRC Chairman Wu Dingfu, said the AIG
official.

3. (SBU) CIRC officials are particularly interested in AIG's
plan announced in early October to sell a minority stake in the
Asia operations of its American Insurance Association (AIA) life
insurance business, said the AIG official. (Note: The holding
company is publicly listed in Hong Kong, and has branches
throughout Asia. There are three branches and five sub-branches
in China. End note.) AIG is looking for a strategic minority
investor in the Hong Kong parent, said the AIG official, with
potential partners in China including China Life, China
Investment Corporation and Ping An Insurance. CIRC recently
told a meeting of Chinese insurance companies that it supports
China Life's bid, said the AIG official.

4. (SBU) Separately, CIRC is supporting People's Insurance
Company of China (PICC) to repurchase the 9.9% stake AIG took in
PICC in 2003, said the AIG official. AIG was obligated to hold
the stake for a five-year lockup period that expires next month.

CIRC Continues Heavy Oversight of AIG

5. (SBU) CIRC still requires AIG to provide daily prior
notification of its cash flow out of China, according to the AIG
official, causing a substantial compliance burden. (See
reftels.) The Beijing representative visits CIRC headquarters as
much as several times a day, said the AIG official, and several
staff are dedicated to meeting the compliance requirements. AIG
is allowed to make payments up to RMB1 million to non-AIG
affiliated overseas entities without pre-approval by CIRC, but
any payments over the RMB1-million limit must be pre-approved by
CIRC, said the AIG official. To date, AIG has received one such
approval, and a second request is still being reviewed by CIRC.
The AIG official said that CIRC has asked AIG to stop all
payments to AIG affiliates in the United States regardless of
the amount. AIG has proposed to CIRC that reserve funds be
transferred from U.S. AIG affiliates to China to be used for
possible claims payments overseas, and CIRC is currently
reviewing the proposal, said the AIG official.

Comment

6. (SBU) That CIRC would coordinate closely with domestic
Chinese insurance firms is no surprise, but the situation here
appears to take this a step farther, with CIRC actively
eliciting information from AIG that would be helpful to AIG's
Chinese competitors in acquiring parts of AIG's business. We
have not corroborated the information provided by AIG with other
insurance industry contacts.

CAMP

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