The China Banking and Insurance Regulatory Commission formulated the Detailed Rules for the Implementation of the Regulations of the People’s Republic of China on Foreign-funded Insurance Companies (the “Detailed Rules”) in accordance with the Insurance Law of the People’s Republic of China and the Regulations of the People’s Republic of China on the Administration of Foreign-funded Insurance Companies itself (the “Regulations”). The Detailed Rules came into effect on November 29, 2019.
1. The Detailed Rules specify the distribution of equity between entities and shareholder status.
Pursuant to the Regulations, “foreign-funded insurance companies” refer to the following whose establishment and operation in China are approved in accordance with relevant laws and administrative regulations of the People’s Republic of China: (1) insurance companies operated as a joint venture between foreign insurance companies and Chinese companies; (2) foreign-funded insurance companies invested and operated in China by foreign insurance companies; or (3) a foreign insurance company’s branch offices. The Detailed Rules first define foreign insurance companies as those registered outside of China and are engaged in the insurance business. Secondly, for a joint venture between a foreign insurance company and a Chinese company to establish an insurance company in China offering personal life insurance, the foreign shareholding shall not exceed 51% of the company’s total capital stock. A foreign-funded insurance company shall have at least one insurance company that is operating in good standing as its major shareholder; this shall be maintained through any changes in the insurance company’s equity. Major shareholder refers to the shareholder with the largest shareholding who can exert significant influence on the operation and management of the company. The shareholding of shareholders, their affiliates and any entities that act together with them shall be calculated together.
2. The Detailed Rules impose various restrictions on foreign-funded insurance companies.
The Detailed Rules provide that the major shareholders of foreign-funded insurance companies shall not transfer their shares, and that such requirement shall be specified in the articles of association of the foreign-funded insurance companies. However, this shall not apply to the following special circumstances, such as risk disposal approved by the China Banking and Insurance Regulatory Commission, statutory transfers ordered by the China Banking and Insurance Regulatory Commission, transfers arising from judicial enforcement, or transfers between different entities under common control. The registered capital or working capital of a foreign-funded insurance company shall be paid-in capital. After a branch office of a foreign insurance company is set up, the foreign insurance company shall not withdraw the working capital in any manner.
3. Clarification of other precautionary conditions under Article 8, Paragraph 5 of the Regulations.
Article 8 of the Regulations provides that a foreign insurance company applying to set up a foreign-funded insurance company shall have the following qualifications: (5) any other precautionary conditions required by the insurance regulatory authority under the State Council. The precautionary conditions here include at least the following: a reasonable corporate governance structure, a stable risk control system, a sound internal control system, an effective information management system, good operational standing, and no record of major legal violations.