the new criterion for the shareholders of insurance companies
1. Q: When will the new rules come into force?
A: The China Insurance Regulatory Commission (“CIRC”) issued the Circular regarding Article 4 of the Measures for the Administration of Equity Interests of Insurance Companies (“The Circular”) on April 9th 2013 which raised the ownership cap of a domestic investor in a domestic insurance company and the rules took into effect on the same day.
2. Q: What’s the important effect of promulgating the Circular?
A: The Circular raised the ownership cap of a domestic shareholder of domestic insurance companies from 20% to 51%. Whilst the 2010 Measures for the Administration of Equity Interests of Insurance Companies provides room for the CIRC to waive such a restriction, in practice CIRC has only provided such waiver to large State-owned Domestic Insurers and Domestic Insurers with commercial bank shareholders. The Circular will effectively open up the insurance sector to domestic investors, encourage strategic investments by private companies and address the capital demand of Domestic Insurers.
3. Q: What are new criterion for the shareholders of insurance companies?
A: According to the Circular, a shareholder who intends to hold 20% (excluding) to 51% equity interest in a Domestic Insurer (“Substantial Shareholder”) must meet below additional criteria:
a. Total assets of the last year should be at least RMB10 billion;
b. Net asset ratio was at least 30%;
c. Long-term equity investment is less than net asset;
d. The investment to the company was more than 3 years(including);
e. Obey the relevant laws and regulation to the shareholder of insurance company.
4. Q: Are there any requirements to the target insurance company and equity transfer?
A: According to the Circular, the target insurance company must have been established for at least three years and the equity of the Substantial Shareholder is subject to an additional three-year lock up from the date its shareholding exceeds 20%, unless otherwise ordered by a court or specifically approved by the CIRC.