The insurance market in China is growing at an unprecedented rate. Cultural norms towards insurance have begun to change regardless of the intangible nature of insurance and a substantial portion of this growth has arrived through foreign investment. Foreign investors continue to increase their share of the Chinese market regardless of the current economic downturn. Compared with other financial sectors, the insurance market is the most accessible in China, however, such investors will ultimately face fresh challenges from the banking sector due to the present state of credit markets and the regulatory environment surrounding Chinese insurance businesses is uninviting. In order for potential investors to gauge prospective returns, one must hold an understanding of the hurdles associated with such forms of investment on the Mainland of China. The following will attempt to outline some of the major hurdles faced by current and prospective investors in China’s insurance market. By no means is this account to be exhaustive, rather its purpose is to provide general insight and awareness. Given the importance of due-diligence, considering the past errs within the market, current and prospective investors must be aware of the current regulatory environment.


First and foremost one must recognize foreign investors face limitations, both
regulatory and in general practice, in regard to the proportion of equity invested into a Chinese insurance business.


According to the Detailed Rules for Implementation of Regulations of the People’s Republic of China on Administration of Foreign-funded Insurance Companies, hereinafter Detailed Rules, an insurance business specializing in life insurance, or as the regulation refers to a “joint-equity life insurance company”, foreign investment is automatically limited to 50% of the company’s equity.
The above is a perfect example of how foreign funded insurance companies within China are subject to additional regulation compared with their domestic counterparts. This being so, the general practice has been to limit foreign funding to 25% of an insurance company’s total equity.


The practice is influenced by a recent draft regulation published by the China Insurance Regulatory Commission (CIRC) which stated for an insurance firm to be considered domestic, and therefore subject to the rules surrounding domestically owned insurance companies, foreign ownership must be under 25% and no single foreign investor can exceed 20%. Thus, the exact state of regulation is plagued with uncertainty and investors, foreign and domestic, must proceed with caution.As per the Detailed Rules a foreign insurance company must first establish a
representative office before setting up a foreign insurance entities.


Importantly, the requirement is not only for the insurer, it is also imposed upon the foreign insurance agency company and the brokerage company. Such a requirement is not levied upon domestic insurance entities. The requirement is met by Article 7 of the Detailed Rules which states the foreign insurance business must have been in operation for at least 30 years. Coupled with Article 8, the representative office may only be established by a foreign insurance company or a “group” to which the foreign insurance company belongs. As per Article 8, these two forms of representative offices appear to be the only two forms which the CIRC will approve.