CIRC Finally Issued the New Insurance Equity Rules

Publication March 2018


On 7 March 2018, the China Insurance Regulatory Commission (CIRC) finally issued the long waited amendments to the Administrative Equity Measures of insurance Companies (the New Equity Rules). Previously, CIRC had issued two successive drafts for public consultation respectively at the end of 2016 and in July 2017.

The New Equity Rules will come into effect on 10 April 2018. Not only will they replace the existing insurance equity rules (the Existing Equity Rules), they will also replace the circular relating to the investment into insurance companies by equity investment entities in the form of limited partnership which was issued by CIRC in 2013 and also the insurance merger and acquisition measures issued by CIRC in 2014.

The major amendments effected by in the New Equity Rules may be summarized as follows:

Applications of the New Equity Rules

The New Equity Rules apply to all domestic insurance companies (including those with foreign shareholding less than 25%). The New Equity Rules only apply to foreign invested insurance companies (the FIE Insurers, whose foreign shareholding reaches 25% or more) by reference.

New types of shareholders

Compared with the Existing Equity Rules, which only differentiate general shareholders from major shareholders (holding 15% or more stake in an insurance company), the New Equity Rules provide four types of shareholders as follows:

  1. Financial I Shareholder – holding <5% stake in an insurer; 
  2. Financial II Shareholder – holding ≥5% but <15% stake in an insurer;
  3. Strategic Shareholder – holding ≥15% stake but holding less than a one third stake in an insurer or its voting rights may have a significant influence on the shareholder resolution; and
  4. Controlling Shareholder – holding one third or more stake in an insurer or its voting rights may have a controlling influence on the shareholder resolution.

In addition to the various qualification requirements and restrictions imposed on different types of shareholders, if the investors are overseas financial institutions, these overseas investors are also required to have the following qualifications:

  1. have made consecutive profits in the preceeding three fiscal years;
  2. have total assets at the end of the preceeding year of no less than USD 2 billion; and
  3. have maintained an A or A+ credit ranking from international rating institutions in the preceeding three years.

Maximum shareholding restriction

The New Equity Rules substantially reduce the maximum shareholding by any single investor/shareholder in an insurance company from 51% to one third (i.e. up to 33%) of the total equity of the insurance company. This restriction will not apply if:

  1. the investor is itself an insurance company and it needs to set up or acquire a new insurance company for business innovation or business specialisation; or 
  2. the insurance group needs to operate on a group basis and thus needs to set up or acquire a new insurance company.

According to a CIRC press release, such requirements on shareholders and shareholdings (including maximum shareholding restriction) will not have retroactive effect on existing shareholders of insurance companies in general, unless CIRC identifies any potential risks with the shareholding structure of existing insurers.

Amended single presence policy

The single presence policy contained in the Existing Equity Rules have been amended as follows:

a. Controlling Shareholder (including its affiliates and person-in-concert)

A Controlling Shareholder can only invest in one (1) insurance company engaging in the same category of insurance business. If the Controlling Shareholder is already an insurance company, it cannot invest into another insurance company which engages in the same category of insurance business as the Controlling Shareholder.

These general restrictions can be exempted if:

  • the State Council grants special approval;
  • CIRC grants special approval; or
  • the Controlling Shareholder (as an insurer) needs to set up a new insurance company for the purpose of business innovation or business specialization (Subsidiary Exemption).

b. Strategic Shareholder (including its affiliates and person-in-concert)

  • An investor can become the Strategic Shareholder of up to two (2) insurance companies, if it is not a Controlling Shareholder of any other insurance companies;
  • An investor can only become the Strategic Shareholder for one (1) insurance company, if it has already been a Controlling Shareholder of another insurance company; and
  • An investor cannot be the Strategic Shareholder, if it has been a Controlling Shareholder of two (2) other insurance companies.

c. Note that the above mentioned amended single presence policy does not apply to Financial I Shareholder or Financial II Shareholder, i.e. these two types of shareholders can invest in an unlimited number of insurance companies.

Source of funding

The New Equity Rules emphasized that an investor shall use its lawful proprietary funds to make a capital contribution into the invested insurance company. Such proprietary funds are limited to the net assets of the investor. No investor may circumvent this requirement by setting up a holding company or transferring expected income rights relating to equity interests.

Additionally, the New Equity Rules expressly prohibit investors from acquiring equity interests in insurance companies by using the following funds, directly or indirectly:

  1. any loans related to insurance companies;
  2. funds obtained as a result of the encumbrance of deposits or other assets of insurance companies; or
  3. funds obtained as a result of improper use of financial influence of or an improper related relationship with insurance companies, etc.

Look-through supervision policy

The New Equity Rules also strictly implement the look-through supervision policy on insurance companies, which may, include, amongst others, the following major requirements:

  1. each shareholder of an insurer must specify (level by level) its shareholding structure up to the de facto controller and its relationship with other shareholder(s) or person-in-concert;
  2. shareholding held by the shareholder, its affiliates, and person-in-concert shall calculate on aggregated basis;
  3. no nominee arrangement is permitted for a shareholder to hold a stake in the insurance company on behalf of any other party or parties; and
  4. when the value of ashareholder’s stake in an insurance company accounts for 50% or more of the total assets of such shareholder, if such shareholder’s de facto controller changes, such new de facto controller should also satisfy the qualification requirements imposed by CIRC on such shareholder.

Under the look-through supervision policy, amongst others, any changes to controlling shareholder of insurance companies’ shareholders, or de facto controller of insurance companies, should be reported to insurance companies, which are thereafter required to submit a report to CIRC.

Penalties on breaching shareholders and relevant parties

The New Equity Rules strictly implement the look-through supervision policy, and CIRC has the right to substantially determine the shareholders of insurance companies, their de facto controllers, related parties and person-in-concert through various measures, including but not limited to:

  1. requesting insurance companies to report shareholding matters;
  2. requesting insurance companies to disclose shareholding information in the public domain;
  3. engaging specialised intermediaries to investigate financial materials provided by insurance companies;
  4. engaging investigation talk with senior management personnel of insurance companies;
  5. publicly inquiring or investigating shareholders which are involved in the shareholding matters at issue; or
  6. imposing administrative penalties on insurance companies or the relevant responsible personnel, etc.

If any shareholders of insurance companies or related parties are found to have engaged in illegal activities or to have violated the New Equity Rules, CIRC may impose a series of penalties on the breaching parties, including but not limited to (i) limiting rights of breaching shareholders, (ii) requesting the breaching shareholders to transfer their stake or sell their stake on auction, or (iii) limiting their investments in insurance industry.

CIRC will also establish a market entry negative list for investors of insurance companies, recording violation activities of investors. Breaching investors may be prohibited by CIRC from entering into the insurance industry for periods up to and including a lifetime ban.


After the issuance of the New Equity Rules, on 17 March 2018, China’s Thirteenth National People's Congress adopted the proposal to combine the China Banking Regulatory Commission (CBRC) and CIRC into the newly established China Banking and Insurance Regulatory Commission (CBIRC).

Given the CBIRC is newly established, the operation, roles, functions and responsibilities of the CBIRC going forward will be the subject of detailed implementation rules. It is anticipated that CBIRC will take over from CIRC the full implementation of the New Equity Rules.

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