China: Regulator sets out rules for shareholders of insurers
Source: Asia Insurance Review | Apr 2018
The CIRC issued its amended “Insurer Shareholder Regulations” on 7 March that aim to ensure transparency and to curb undue control by shareholders of insurance companies in a bid to reduce risk.
In a briefing note, international law firm Clyde & Co points out that the Regulations categorise shareholders of insurance companies as follows:
- Financial Investor Class I – (holding a stake of less than 5%)
- Financial Investor Class II – (5% or greater but less than 15%)
- Strategic Investor – (15% or greater but less than one third)
- Controlling Investor – (At least one third).
Forced divestment cannot be ruled out
The CIRC, in its explanatory notes accompanying the Regulations, noted that it did not anticipate immediately subjecting an insurer’s pre-existing shareholders’ holdings to the new requirements. However, CIRC also noted that it reserves the right to provide guidance to, and take measures in respect of, those insurers which may be at risk due to their pre-existing shareholder structures.
Qualifying criteria for different categories of shareholders
The Regulations set out the qualifying criteria to be met by any new applicant for each of an insurer’s four categories of shareholders as follows:
- Financial Class I new applicants must satisfy the following criteria:
- Being operationally sound, with a reasonable level of operating revenue.
- Being financially sound, with the most recent financial year being profitable.
- Having sound and complete tax records, with an unbroken and unblemished tax history for the three most recent years.
- Having sound integrity, with no major integrity failing for the three most recent years.
- Having sound governance and compliance, with no major regulatory or legal breaches for the three most recent years.
- Financial Class II new applicants must, in addition to the Financial Class I criteria, also satisfy the following criteria:
- Having sound reputation; stable and secure investment record; excellence in its core business.
- Having the financial strength to make the investment, with the most recent two financial years being profitable.
- Having a strong balance sheet, with net assets exceeding CNY200 million (US$31.6 million).
- Strategic Investor new applicants must, in addition to both Financial Class I and Financial Class II criteria, also satisfy the following criteria:
- Having a strong balance sheet, with the most recent three financial years being profitable.
- Having net assets exceeding CNY1 billion.
- Having an equity investment balance not exceeding net asset value
- Controlling Investor new applicants (ie for 1/3 and 1/3 only) must, in addition to all of Financial Class I, Financial Class II and Strategic Investor criteria, also satisfy the following criteria:
(i) Having gross assets exceeding CNY10 billion.
(ii) As at the end of the most recent financial year, having a net asset value greater than 30% of gross assets.
The Regulations also for the first time in the insurance sector introduce a “Negative List” of disqualifying criteria for applicants for stakes in insurers. A