New Measures Issued for Pension Insurance Companies

On 12 December 2023, the National Administration of Financial Regulation (NAFR) issued the new Interim Measures on the Administration and Management of Pension Insurance Companies (the Pension Insurance Measures) which took immediate effect. This is the first regulation issued to supervise the pension insurance business in China.

There are only 10 insurance companies which are specialised in pension insurance business in the Chinese insurance market. As pension insurance business legally falls within the scope of life insurance business in China, for a long period of time the positioning of a specialised pension insurance company was not clear. Some pension insurance companies not only engage in pension insurance businesses: they are also involved in other non-pension related life insurance business or even asset management business. These significantly deviate from the initial regulatory intention that a pension insurance license shall only be issued to insurers who specialise in pension insurance business).

Given this background, the insurance regulator has aimed to reshape the regulatory regime for pension insurance business since 2021. Draft rules were issued earlier this year for public consultation before the Pension Insurance Measures were formally promulgated. 

We set out below some key highlights of the Pension Insurance Measures:

1. “Pension insurance companies” are legally defined as specialised life insurance companies which mainly conduct commercial pension insurance business and pension fund management business. “Pension fund” is further referred to as including the basic pension insurance fund and the corporate (occupational) annuity fund entrusted to pension insurance companies for management.

2. Corporate governance requirements imposed on pension insurance companies are generally the same as those of other types of insurance companies, such as voting mechanisms at the board level and the requirement for the appointment of independent directors etc. However, the Pension Insurance Measures do not allow non-financial institutions to become a controlling shareholder holding one third or more of the equity of a pension insurance company. 

3. Different capital requirements applicable to pension insurance companies. A pension insurance company must have registered capital in an amount of no less than RMB1 billion if it wishes to carry out businesses in the nature of: (a) pension natured annuity insurance and life insurance, long-term health insurance and accidental injury insurance (Type A Business), or (b) commercial pension insurance (Type B Business). For pension insurance companies that carry out pension fund management business (Type C Business) in addition to (a) and (b) above, it must have a registered capital in an amount of no less than RMB3 billion. A pension insurance company can additionally carry out the business of managing insurance funds, which however is not subject to additional capital requirements. 

4. Feasibility of carrying out business nationwide. A pension insurance company is required to set up provincial level branches prior to carrying out Type A Business or Type B Business in a different province. However such requirement is not necessary if a pension insurance company wishes to carry out Type C Business in a different province. 

5. Pension insurance companies are not permitted to act as trustee of insurance funds nor carry out businesses relating to insurance asset management products. The Pension Insurance Measures require any such pension insurance companies which are engaging in the above prohibited businesses to rectify the breach, either by spinning off or terminating the relevant business activities. Although the Pension Insurance Measures are not clear, we assume that this prohibition only applies to circumstances where the pension insurance company aims to act as the trustee of, and manage, the insurance funds of other insurance companies, while the pension insurance company can still engage in the Type C Business mentioned above so as to manage its own insurance funds. 

6. Pension insurance companies that are contemplating pension fund business will need to additionally obtain prior written consent from NAFR. They will also need to satisfy additional qualification requirements (e.g. no material breach of laws and regulations in the past three years). Further, a dedicated internal team needs to be established to carry out pension fund business, with specific requirements on the distribution of responsibilities including that (a) the investment management personnel shall not assume dual positions in teams carrying out other types of business in the same pension insurance company; and (b) senior management personnel responsible for the investment management work of the pension fund business shall not be responsible for the insurance funds investment management business. 

The Pension Insurance Measures are silent on whether a pension insurance company can be owned by foreign investors. However, as the requirements on setting up a pension insurance company is generally the same as that of an ordinary life insurance company, we are of a view that qualified foreign investors can also make an application to NARF in order to set up a foreign invested pension insurance company.  NAFR may however adopt a stricter approach when reviewing the applications submitted by foreign investors.