Article 104. Insurance companies shall use their capital funds in a stable way, abide by the principle of safety and maintain and increase the value of such capital.

The use of capital funds by an insurance company shall be limited to bank savings, the purchase of government bonds and financial securities and other use of capital funds as stipulated by the State Council.

An insurance company's capital funds shall not be used to establish securities companies or to invest in enterprises.

The financial supervision and management department shall determine over the maximum proportion that the total amount used by an insurance company and the amount for specific projects bears to the capital of the insurance company.

Article 105. In conducting insurance business activities, an insurance company and its staff and employees shall not commit any of the following:

(1) deceive the Applicant, the Insured or the Beneficiary;
(2) withhold from the Applicant any material information in connection with the insurance contract;
(3) prevent the Applicant from performing his obligation of giving truthful information as stipulated herein, or to induce the Applicant not to perform his obligation of giving truthful information as stipulated herein; and
(4) promise the Applicant, the Insured or the Beneficiary commission on insurance premiums or other benefits that are excluded from the insurance contract.

Chapter V Supervision and Management of the Insurance Industry

Article 106. The basic terms and conditions and the premiums for the principal types of commercial insurance to be underwritten by an insurance company shall be determined by the financial supervision and management departments.

The terms and conditions and the premiums for other proposed types of insurance to be underwritten by an insurance company shall be filed with the financial supervision and management departments.

Article 107. The financial supervision and management departments shall have the right to inspect the business, financial and capital situation of insurance companies and shall have the right to ask insurance companies to provide relevant written reports and information within a stipulated time limit.

Insurance companies shall, in accordance with the law, accept the supervision and inspection by the financial supervision and management departments.

Article 108. Where an insurance company fails to set aside or retain the different types of insurance reserve funds as stipulated hereunder, or fails to undertake reinsurance as stipulated hereunder, or is in material violation of any stipulations hereunder concerning the use of capital funds, the financial supervision and management departments shall order such insurance company to make corrections within a set period by taking the following measures:

(1) To set aside or retain the different types of insurance reserve funds in accordance with the law;
(2) To undertake reinsurance in accordance with the law;
(3) To correct any acts of using the capital funds against the law;
(4) To remove or change responsible personnel and related management staff.

Article 109. As set forth in the previous article hereof, after the financial supervision and management departments decides on a correction, which the insurance company fails to make within the set period, at the sole discretion of the supervision and management department, specialized insurance personnel and designated staff of the concerned insurance company will form a rectification organization to rectify the insurance company.

The decision of rectification shall bear the name of the insurance company, causes for rectification, the rectification organization and the term of rectification, and shall be publicly announced.

Article 110. During the course of the rectification, the rectification organization shall have the right to supervise the daily business of the insurance company. The responsible personnel of the insurance company as well as related management staff shall exercise their powers under the supervision of the rectification organization.

Article 111. During the course of the rectification, the existing business of the insurance company shall continue, and the financial supervision and management departments shall have the right to stop developing new business or stop part of the existing business in order to adjust the use of capital funds.

Article 112. When the rectified insurance company has corrected its acts in violation of this Law and has returned to normal operation, the rectification organization shall present a report, and subject to the approval of the financial supervision and management department, the rectification shall be terminated.

Article 113. Where an insurance company violates the stipulations hereof and harms public interest, which, as a result may seriously endanger or has endangered the insurance company's solvency, the financial supervision and management department may take over the insurance company.

The purpose of such takeover is to take necessary measures against the insurance company so as to protect the interest of the Insured and restore the normal operation capacity of the insurance company taken over. After takeover, the obligations and liabilities of the insurance company shall remain unchanged.

Article 114. The formation of the takeover organization and the implementation measures for the takeover shall be subject to the decision of the financial supervision and management departments and shall be publicly announced.

Article 115. Upon expiration of the term of takeover, the financial supervision and management department may decide to extend such term; provided, however, that the term of takeover shall not exceed two years.

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