With the rapid development of Chinese insurance market and the trend of the financial deregulation, more and more foreign financial institutions want to invest in Chinese insurance companies. How to invest in a Chinese insurance company are concerns of many of my foreign clients. As you know, there are two basic accesses for foreign financial institutions to invest in Chinese insurance company, one is to establish a “foreign funded” insurance company with its Chinese partners in China, the other is to purchase a Chinese insurance company’s equities. This article focuses on the second one.
Due to our government’s policy of the separate operation and management of insurance, bank and security industries, foreign banks are still not allowed to invest in Chinese insurance company although the State Council gave a special approval to four Chinese domestic banks’ investment in Chinese insurance companies. Under most circumstances until now, foreign financial groups often invest in Chinese insurance companies through its insurance companies in the group, rather than by the financial group itself.
With regard to foreign insurance companies’ equity investment in Chinese insurance companies, three regulations promulgated by China Insurance Regulatory Commission (CIRC) are applied, they are: the Administrative Provision on Insurance Companies, the Temporary Provision on the Equity Investment in Insurance Companies, the Notice of the China Insurance Regulatory Commission on Regulating Relevant Matters Concerning Chinese funded Insurance Companies’ Invitation of Foreign Equity Investment. Additionally, the unimplemented Draft of Administrative Provision on Equity of the Insurance Companies for Public Comments indicates the CIRC’s attitude toward foreign insurance companies’ equity investment.
According to article 6 of the Temporary Provision on the Equity Investment in Insurance Companies, if the foreign investors invest in a Chinese insurance Company it shall be subject to (1) a sole foreign shareholder’s equity of this Chinese insurance company shall not excess 10% of the its whole shares, and (2) all foreign shareholders’ equity of this insurance company shall not excess 25%. Article 3 of the Notice of the China Insurance Regulatory Commission on Regulating Relevant Matters Concerning Chinese funded Insurance Companies’ Invitation of Foreign Equity Investment states, the foreign shareholders of a Chinese insurance company shall be foreign financial legal entities, at least two of which shall be foreign insurance institutions, and in principle, the foreign insurance groups or insurance companies having had insurance license to run insurance business in China shall not be allow to invest in Chinese insurance companies again. So many of my foreign clients are very puzzled about CIRC’s regulation, they told me they really want to know how many Chinese insurance companies the Chinese laws and regulations allow them to invest in and how many shares the Chinese laws and regulations allow them to hold in a Chinese insurance company?
In Chinese insurance regulatory system, 25% is a red-line. The Chinese insurance company whose foreign shares percentage is 25% or more is treated as “Foreign Funded” insurance company and is regulated by the Administrative Provision on Foreign Funded Insurance Company and its Detail Rules for its implementation. On the contrary, the Chinese insurance company whose foreign shares are less than 25% is treated as “Chinese funded” insurance company and is regulated by the Administrative Provision on Chinese Funded Insurance Company.
According to the Administrative Provision on Insurance Companies , 20% is another red-line, because “except the insurance holding companies or insurance companies approved by CIRC, the Chinese insurance company’s shares held by a sole legal entity (including its affiliates) shall not exceed 20% of its total shares.
In practice, CIRC allow sole foreign investor to purchase more than 10% even more than 20% which is not strictly confirm to the Temporary Provision on the Equity Investment in Insurance Companies. A model that has been employed by the foreign insurance companies in investing in a Chinese insurance company is that they purchased less than 20% of the total shares of the Chinese insurance company at the first time, and then increases its shares to less than 25%.
Theoretically speaking, if getting CIRC’s approval, a foreign insurance company can invest in Chinese funded life insurance company up to that less than 50% of its total shares and there are no limitation of foreign shareholders’ percentage in Chinese funded property insurance company In practices, such percentage can rarely be in excess of 50% as well, because the Chinese shareholders want to keep the controlling position of the insurance company.
As to how many Chinese insurance companies can a foreign insurance company invest in allowed by Chinese laws and regulations, although article 3 of the Notice of the China Insurance Regulatory Commission on Regulating Relevant Matters Concerning Chinese funded Insurance Companies’ Invitation of Foreign Equity Investment states “in principle, the foreign insurance groups or insurance companies having had insurance license to run insurance business in China shall not be allow to invest Chinese insurance companies again”, CIRC allows the foreign insurance company invest in 2 Chinese insurance companies at maximum, one is Property Insurance Company and the other is Life Insurance Company. Simply put, the two Chinese Insurance Companies invested in by foreign insurance company shall be different kinds: property and life.
With regard to the Examination and Approval Procedure imposed by CIRC and other competent authorities, there are five steps before the whole procedure is fulfilled: (1) the Chinese insurance company shall file an Application for CIRC’s approval of the new entrant (the foreign investor) which subject to the conditions set out in the Equity Purchase Investment Agreement and the Shareholders Agreement and subject to that, the General Meeting of Shareholders of the Chinese insurance company must pass the shareholder’s resolution to agree upon the foreign investor’s purchase of its shares; (2) if the first step is approved by CIRC, the Chinese insurance company need to file other documents concerning the foreign investor to CIRC, who will examine the foreign investor’s qualification ( usually step(1) and step (2) can be done simultaneously); (3)if step 1 and 2 are approved by CIRC, the foreign investor shall remit their capital into the account of Chinese insurance company as the consideration of the shares purchased after they present CIRC’s written approval document to SAFE or its local office and submit an Application to CIRC for its approval of changing of the registered capital and amendment of Article of Association of the insurance company ; (4) present CIRC’s written approval to MOFCOM or its local office for record; (5) present CIRC’s written approval to SAIC or its local office for registration.