On December 6, 2019, the China Banking and Insurance Regulatory Commission (CBIRC) officially announced that the foreign ownership restriction on life insurance companies will be fully lifted with effect from 1 January 2020 (the Announcement). Following the Announcement, parties may start to submit applications to CBIRC for approval of equity transfers. This Announcement implements the government’s most recent 11 opening-up measures in the financial services industry in China (please refer to details in our previous publication in July 2019.
On the same day as the Announcement, CBIRC also promulgated the long-awaited 2019 amended version of the Implementation Rules of the Administrative Regulations on Foreign-invested Insurance Company (《外资保险公司管理条例实施细则》) (the Amended Implementation Rules), which will be further amended by CBIRC to reflect the final foreign ownership liberalization set out in the Announcement. Pending those further amendments, the key points of the existing Amended Implementation Rules are summarized as follows:
- The Amended Implementation Rules provide that up to 51 per cent foreign ownership is now permitted in the life sector, unless otherwise provided by CBIRC. The 51 per cent limit is expected to be amended soon to 100 per cent from January 1, 2020 according to the Announcement.
- Requirements imposed on foreign investors, including to have a track record of engaging in insurance business for at least 30 years and having established an insurance representative office for at least two years, have been removed. These echo the amendments to the Administrative Regulations on Foreign-invested Insurance Company in late September 2019.
- The Amended Implementation Rules require that a foreign-invested insurance company (Insurance FIE) must have at least one “major shareholder” which is an insurance company in ordinary business operation. “Major shareholder” is defined as a shareholder who holds the largest shareholding percentage (calculated on an aggregated basis) in or has a material impact on the operation and management of the Insurance FIE.
- The “major shareholder” must undertake, and set out in the articles of association of the Insurance FIE, that it will not transfer its equity interest in the Insurance FIE within five years from the date that it acquired the equity interest (unless the transfer is approved by CBIRC as part of a risk disposal; is ordered by CBIRC; is subject to a judicial enforcement; or is between affiliates under the same controller).
- If the “major shareholder” intends to reduce its shareholding percentage in the Insurance FIE or exit the Chinese market, it must meet its obligations as a shareholder and ensure that the solvency of the Insurance FIE complies with regulatory requirements.
- Specific requirements imposed on Insurance FIEs’ establishment of branch offices have been removed. Insurance FIEs are now subject to the same branch opening requirements as those applicable to domestic insurance companies. This is positive news for the expansion of Insurance FIE business in China.
- So that the Administrative Measures on Equity Interest of Insurance Company apply equally to foreign and Chinese investors in insurance companies, specific qualification requirements imposed on the Chinese investor of an Insurance FIE have also been removed.
Subject to upcoming further amendments to reflect the final foreign ownership liberalization, the issue of the Announcement and the Amended Implementation Rules are very positive and encouraging signals for the insurance sector. It is expected that more foreign insurance capital will enter the Chinese insurance sector, which may ultimately reform and further develop the Chinese insurance market in the next decade.