Regulatory framework, trends of insurance investment in equity

By Deng Weifang and Zhang Chu'ao, Merits & Tree Law Offices

Insurance capital generally refers to the capital, provident funds, undistributed profits, provisioning and other capital of insurance group (holding) companies and insurance companies denominated in domestic and foreign currencies. As a type of long-term capital, insurance capital’s large volume and long investment period match the long investment cycle of equity investments; however, insurance institutions also need to increase their long-term returns by increasing equity-like investments.

In recent years, regulators have gradually relaxed the restrictions on the targets and industry sectors insurance capital is invested in, and the China Banking and Insurance Regulatory Commission (CBIRC) also mentioned in its Q&A session in March 2022 that it would fully utilise the advantages of long-term investment of insurance capital and guide insurance institutions to allocate more capital towards equity assets. Hence, a comprehensive regulation is needed to ensure the safety of insurance capital in equity investment activities.


Deng Weifang, Merits & Tree Law Offices
Deng Weifang
Merits & Tree Law Offices

Investment of insurance capital in equity can be divided into direct and indirect equity investments. Direct equity investments can be classified into material equity investments and financial equity investments according to the level of control over the investee companies. The targets of indirect equity investments include equity investment funds, insurance capital management products, pooled capital trusts, debt-to-equity investment plans and other capital management products. However, for indirect equity investments, attention should be paid to regulatory requirements not only for insurance investments but also for the investee management institution and the overall compliance of the transaction structure.


Direct equity investment of insurance capital refers to insurance companies investing and holding equity in companies not publicly listed on Chinese stock exchanges on behalf of their funders. For a direct investment of insurance capital, the regulators have set corresponding requirements regarding the source of insurance capital, corporate governance, professional staffing, net assets, solvency, pre-investment approval, the development prospect of the invested company, the industry, the credibility of shareholders and senior management, as well as the control and management ability of the insurance institution over the invested company and the investment project.

On the whole, the regulatory authorities have set higher requirements for material equity investments than financial equity investments, especially in terms of the scope of the investment industry, and the CBIRC issued a document in November 2020 to remove some restrictions on the investment sectors for financial equity investments. This gives insurance capital access to the real economy, while reflecting the more relaxed regulatory attitude towards financial equity investments than material equity investments.


Zhang Chu’ao, Merits & Tree Law Offices
Zhang Chu’ao
Merits & Tree Law Offices

Indirect equity investment of insurance capital means insurance companies can invest in equity investment funds initiated by equity investment management institutions and other related financial products. Compared with the direct equity investment model, indirect equity investment not only complies with a series of regulations on the establishment body, investment scope and investment ratio of insurance institutions, private equity funds, trust plans and other types of financial products, but it also stresses that insurance institutions should be capable of investing and managing the underlying assets penetrated, and incorporate the corresponding investment ratio by the underlying asset category to manage the risk of the underlying assets invested. This requirement is also in line with the “penetrating regulatory concept” in the new asset management regulations.

In addition, it is noteworthy that provisions concerning restrictions to the indirect equity investment of insurance capital were deleted from the Notice on Revision of Partial Normative Documents on the Use of Insurance Capital, issued by the CBIRC in April 2022. For instance, the provision that “non-insurance financial institutions and their subsidiaries shall not effectively control or hold general partnership interests of the fund” has been removed for insurance capital investing in equity investment funds.

The provision that “the raising scale of a single fund shall not exceed RMB500 million [USD73.7 million]” has been deleted for venture capital funds. For insurance private equity funds established with insurance capital participation, the provision that “the amount of capital contributed by the promoter and its affiliated insurance institutions shall not be less than 30% of the proposed capital raising scale” has been eliminated. All these amendments demonstrate regulators’ open attitude toward encouraging insurance capital to participate in equity investments.


In the process of equity investment by insurance capital, there are various restrictions and requirements in terms of pre-investment approval, the exit of insurance capital, insurance companies, portfolio companies and underlying assets. However, the general attitude of encouraging insurance capital to engage in equity investment is still present.

From another perspective, if an investee company or industry can successfully introduce insurance capital investment, it will shape and enhance its brand and value, and also help the company attract more quality investment institutions in the future to usher in new development opportunities.


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