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06 June 2017
Amid fierce competition among insurers, increasingly more investors – both domestic and foreign – are striving to enter the Chinese insurance market.
The regulations concerning investment limits and the required qualifications for shareholders that want to invest in Chinese insurers continue to be a focal point for potential investors. On December 29 2016 the China Insurance Regulatory Commission (CIRC) published the Administrative Measures for Equities of Insurance Companies (Draft for Comments). When they are passed and officially enforced in the near future, the final draft measures will affect:
Under these circumstances, it is pertinent to analyse some of the major changes that the draft measures (as they stand) will introduce.
The draft measures introduce criteria to divide shareholders of insurers into three new categories according to their shareholding percentages and qualifying conditions and their impact on the insurer's business operations and management – namely:
The draft measures specify that investors which satisfy the relevant provisions prescribed therein – which could include corporations, limited partnership enterprises, public institutions, social groups and overseas financial institutions – may become shareholders of an insurer. However, limited partnership enterprises, public institutions and social groups are limited to becoming financial shareholders. Referring to natural persons, the draft also holds that by purchasing shares in a publicly listed insurance company on the stock market in China, a natural person can (to the extent that he or she can access the relevant Chinese stock market) become a financial shareholder of that listed insurer.
For investors applying to become one of the abovementioned types of shareholder in a Chinese insurer, the draft measures set out specific qualification requirements that investor applicants must meet, which differ according to their classification.
To apply as a financial shareholder, the potential investor must:
Further qualification requirements include:
To apply as a strategic shareholder, in addition to meeting the requirements for a financial shareholder, the applicant must:
To apply as a controlling shareholder, in addition to meeting the requirements for financial and strategic shareholders, the applicant must:
The draft measures also specify particular requirements for the different types of investor on the basis of their own conditions.
Means of acquiring equity
According to the draft measures, investors can acquire equity by:
Prohibitions regarding acquisition of equity
The draft measures expressly prohibit the acquisition of equity in an insurer through the use of the following funds, obtained either directly or indirectly:
The draft measures emphasise that the shareholding ratio of:
However, restrictions on shareholding ratios will not apply where:
When calculating shareholding ratios for this purpose, the shareholding ratios of affiliated shareholders shall be combined.
Number of insurers that a shareholder can invest in
An investor may be the controlling shareholder of only one insurer engaging in a certain type of business, except under special circumstances – such as participating in a risk-based disposal plan – following the CIRC's special approval. Similarly, an investor is prohibited from becoming a strategic shareholder in more than two insurers simultaneously (two is allowed). An investor applying as a financial shareholder is unrestricted in the number of insurers in which it may invest.
Investment by way of trust funds or funds under entrusted management
Trust, fund and financial companies and other institutions may invest in insurers with trust funds or funds under entrusted management, but may become only financial shareholders and must progressively disclose, level by level:
Transfers of equity
A controlling shareholder cannot transfer any equity held within three years from the date of the insurer's establishment. For strategic and financial shareholders, the restriction period is limited to two years and one year, respectively.
The draft measures make fundamental changes to the existing regulatory framework. Observers look forward to seeing its positive influence on the Chinese insurance market.
For further information on this topic please contact Hao Zhan, Chen Jun, Yu Dan or Dong Xin at AnJie Law Firm by telephone (+86 10 8567 5988) or email (email@example.com, firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The AnJie Law Firm website can be accessed at www.anjielaw.com.
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