After three rounds of public consultation, the China Insurance Regulatory Commission finally promulgated the long-awaited Measures on 4 May 2010 to further regulate equity investments in Chinese insurance companies with less than 25% foreign shareholding (“Domestic Insurance Companies”). The Measures, amongst others, provide qualification requirements for shareholders investing in Domestic Insurance Companies, shareholding limits for each single shareholder and non-compete restrictions for Domestic Insurance Companies under common control. The previous rules on the same subject matter will be repealed once the Measures come into effect.
Highlights
According to the Measures, a foreign financial institution that satisfies the following requirements can apply to invest in a Domestic Insurance Company:
- has stable and sound financial performance and has been profitable for the past three consecutive financial years;
- has total assets of no less than USD2 billion at the end of the preceding year;
- has been graded A or above for the past three years in respect of its long-term credit rating by international rating agencies;
- has no record of material non-compliance for the past three consecutive years; and
- has complied with the regulatory indicators required by its financial regulatory authorities.
Under the Measures, a major shareholder (irrespective of being a domestic or foreign shareholder) of a Domestic Insurance Company (“Major Shareholder”) is defined as a shareholder that holds 15% or more equity interests, or holds less than 15% equity interests but directly or indirectly controls the Domestic Insurance Company. In addition to the general qualification requirements provided under the Measures, a Major Shareholder has to meet the following requirements:
- has continuous capability to a make capital injection and has been profitable for the past three consecutive financial years;
- has solid funding capabilities and has net assets of no less than RMB200 million; and
- has a good credit rating and reputation and is in a leading position in the relevant industry.
In general, the aggregate shareholding of a single shareholder (together with its affiliates) in a Domestic Insurance Company may not exceed 20% of the registered capital of the Domestic Insurance Company. However, the CIRC may approve a Major Shareholder to hold more than 20% equity interests in a Domestic Insurance Company in specific cases with a view to encouraging strategic investments, improving corporate governance and avoiding over-diversification of shareholdings.
The Measures, for the first time, expressly impose non-compete restrictions on Domestic Insurance Companies under common control: unless otherwise permitted under the CIRC rules, two or more Domestic Insurance Companies that are under common control, or have controlling relationship with each other, are not permitted to carry on insurance businesses of the same category which will result in conflict in interests or competition between (among) each other.
The Measures also emphasize certain restrictions applicable to the shareholders of Domestic Insurance Companies, including:
- Capital contribution - a shareholder must make capital con-tributions in cash with its own funds from legitimate sources;
- Direct holding - generally, a party is prohibited from entrusting any third parties to hold equity interests in Domestic Insurance Companies, or accepting such entrustment from third parties;
- Connected Transactions - any shareholder or actual controller is prohibited from impairing the interests of the Domestic Insurance Companies through connected transactions; and
- Disclosure of interest - each shareholder is required to disclose to the Domestic Insurance Company its controlling shareholder, actual controller and any connected relationship between itself and the other shareholders (or their respective actual controllers), and any changes in respect of the foregoing, and the Domestic Insurance Company in turn is required to report the same to the CIRC.
For further information, please contact:
Jian Fang (jian.fang@linklaters.com, (+86) 21 2891 1858).
