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China to ease restrictions for foreign-funded insurance companies

Xinhua Financein www.cfbond.com
2018-05-16 14:44

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China will revise the implementing rules of the regulations of foreign-funded insurance companies, an effort towards a further opening-up of the country’s financial industry, an exclusive source told the Shanghai Securities News Tuesday.
 
According to industry sources, the revision will focus on three aspects: raising the cap of foreign capital in joint-venture life insurance companies, lowering the threshold for the establishment of joint venture and wholly-owned insurance company branches, and regulating equity changing behaviors in foreign-funded insurance companies.

First of all, the upper limit of the shareholding of foreign capital in joint-venture life insurance companies will be raised from 50 percent to 51 percent. This is a key move as China’s insurance industry is accelerating pace to open up. The upper limit of a foreign stakeholder in joint-venture life insurance companies will be raised to 51%, and will be lifted in three years. The one-percent ease will give foreign capital controlling right and right of speech in joint-venture life insurance companies.

Secondly, the threshold for the establishment of joint-venture and wholly-owned insurance company branches will be lowered, and the application procedures will be simplified. According to the old regulations, joint-venture and wholly-owned insurance companies with a minimum registered capital of 200 million yuan should increase at least 20 billion registered capital to set up branches for the first time in province, autonomous region, or municipality outside the jurisdiction of the company’s residence. Foreign-funded insurance companies that apply for the establishment of a branch shall have sufficient solvency in the previous year and have sufficient solvency for two consecutive quarters before submitting the application.

Industry insiders disclosed that the above-mentioned old regulations may be cancelled. With increasing expansion in businesses in recent years, the vast majority of joint-venture and foreign-funded insurance companies had their registered capitals over 500 million yuan a long time ago. So it seems necessary to revise the previous regulations based on current industry situation. 

Lastly, regulators will specify and regulate equity changing behaviors in foreign-funded insurance companies. The former China Insurance Regulatory Commission released a notice of management over equity of insurers in May, which clarified the rules before investing in insurance companies, rules after becoming shareholders of insurance companies, and rules of equity regulation. Industry insiders disclosed that another big move of the revision is regulation on management over equity of foreign-funded insurance companies.  

The above person remarked that it will be currently revised as that foreign-funded insurance firm should have at least one insurance company with normal operation as its substantial shareholder. If its equity is changed, it should have at least one insurance company with normal operation as its substantial shareholder after changing equity. Its substantial shareholders are not allowed to transfer their shareholdings in five years since they acquired the shareholdings. When they plan to reduce shareholdings or quite Chinese market through transferring equity, they should perform their obligation as legal shareholders and supplement capitals in time when necessary to ensure that solvency of insurance company meets requirements of regulators. 

The substantial shareholders mentioned above means those with over 50 percent of total capitalization or shares of foreign-funded insurance company, or the biggest individual shareholder, or those shareholders who are significantly important to the company’s operation and management even though they don’t have over 50 percent of total capitalization or shares of foreign-funded insurance company. 

Industry insiders viewed that the revision will boost further development of foreign-funded insurance companies in China. Particularly, simplifying the application procedures of establishing branches satisfies the appeal of these companies. They are expected to accelerate investment in China. 

Translated by Coral Zhong  & Vanessa Chen


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