On 4 May the China Insurance Regulatory Commission (CIRC) published the Shareholdings of Insurance Companies Administrative Measures, imposing stringent requirements on insurance companies in a number of areas such as shareholding structure, methods of capital contribution and the actions of their shareholders.
Scope of application
The Measures govern domestic insurance companies, i.e. insurance companies established with the approval of CIRC and registered according to law, in which capital contributions by or shareholdings of foreign shareholders represent less than 25% of the registered capital of the companies. For insurance companies in which capital contributions by or shareholdings of all foreign shareholders represent more than 25% of the registered capital, the Foreign-invested Insurance Companies Administrative Measures, their implementing rules and other relevant regulations apply.
Eligibility of shareholders
Entities eligible to be shareholders are corporate bodies inside China and financial institutions outside China. Articles 13 and 14 of the Measures set out specific requirements for these two types of entity.
Investors who buy the shares of a listed insurance company on a stock exchange are not subject to such requirements. However it should be noted that CIRC has reserved, under Article 17 of the Measures, the “right to request any investor who does not meet the requirements of the Measures to transfer his/her shares” .
In addition, no “anonymous shareholders” are permitted in the Measures, which means a shareholder of an insurance company is not allowed to authorize another party to hold any shareholding of an insurance company on its behalf.
Shareholding percentage
The Measures provide that a single shareholder (including its connected parties) is not permitted to contribute capital or hold any shareholding in excess of 20% of the registered capital of an insurance company. However, according to Article 15, any shareholder holding more than a 15% stake in an insurance company, or holding less than 15% with direct or indirect control over the company, is not subject to the above restriction after it has obtained approval.
It is noteworthy that if “two or more insurers are subject to control by the same institution or have a controlling relationship therewith” as referred to in Article 15, these insurance companies “are not permitted to operate similar insurance business with a conflict of interest or a competing relationship” , unless otherwise provided by CIRC.
Methods of capital contribution
Compared with the general provisions of the PRC Company Law on methods of capital contribution by shareholders, the Measures lay down specific requirements for the shareholders of insurance companies. Firstly, they can only contribute in currency, but not in kind, intellectual property, land use rights or other non-monetary property. Secondly, they should invest in insurance companies with their own funds from a legitimate source, instead of other funds such as bank loans or other forms of non-self owned funds.
Change in shareholding
Approval must be sought from CIRC when there is a change in the shareholders of an insurance company in which their capital contributions represent more than 5% of the registered capital of the company or their holdings are more than 5% of the shares (including purchased shares issued by listed insurance companies).
Financing by listed companies
The Measures provide that if an insurance company carries out re-financing after an initial public offering or a listing, it should seek regulatory views from CIRC, in addition to the compliance with the legislation and the requirements of the Measures.
