With nearly four decades in the region, Paul, Weiss has long been recognized as a leader and legal innovator among international law firms in Asia. Our Asia based partners have been consistently ranked in the top tier of practitioners in their areas of expertise.
New Rules for Foreign Insurers’ Activities in China
July 2, 2004
The China Insurance Regulatory Commission ("CIRC") recently issued the Administrative Regulations on Insurance Companies (the "Administrative Regulations") and the Implementing Rules (the "FIIC Implementing Rules") to the Regulations of the PRC for the Administration of Foreign-Invested Insurance Companies ("FIIC Regulations") effective as of June 15, 2004. Drafts of both the Administrative Regulations and the FIIC Implementing Rules were circulated by CIRC for comment in the Summer of 2003.
The new rules have a substantial impact on the operations of foreign insurance companies in China, depending on the legal form of their involvement in the PRC insurance market. Insurance companies in which the aggregate foreign equity interest is less than 25% are defined as domestic companies, and are governed entirely by the Administrative Regulations. Insurance companies in which the aggregate foreign equity interest equals or exceeds 25% and branches of foreign insurance companies are defined as foreign-invested insurance companies ("FIICs") and are subject to the FIIC Regulations and the FIIC Implementing Rules. FIICs are also subject to the Administrative Regulations on matters not directly regulated by the FIIC Regulations and the FIIC Implementing Rules.
The new sets of rules facilitate market entry in several ways. The Administrative Regulations abolish the distinction between nationwide insurance companies (which required a higher registered capital) and regional insurance companies. For both foreign and domestic insurance companies, the minimum registered capital requirement is now RMB 200 million. The registered capital requirement increases by RMB 20 million for each additional branch established by an insurance company. Once the registered capital reaches RMB 500 million, no further increase is required.
The new rules also facilitate investment in domestic Chinese insurance companies by increasing the maximum equity interest that a single corporate shareholder (regardless of nationality) may own to 20%. This doubles the previously permitted maximum, and represents an increase from the 15% limit included in the draft version of the Administrative Regulations circulated by CIRC for comment last year. Furthermore, under the Closer Economic Partnership Arrangements between the PRC central government and Hong Kong and Macao, qualifying Hong Kong or Macao insurance companies are allowed to hold up to a 24.9% equity interest in domestic Chinese insurance companies. However, the Administrative Regulations include a new limitation that foreign investors in domestic insurance companies must be financial institutions.
Branching of insurance companies also becomes easier under the new regulations. It is no longer required that an insurance company operates for one year prior to being permitted to open operating entities (such as branches), nor is it required that the most recent establishment of an operating entity must have been successfully completed prior to application for an additional operating entity. The Administrative Regulations and the FIIC Implementing Rules provide that a domestic insurance company or FIIC must establish a new branch if it commences operations outside the province of their head office. This implies that the head office or a branch is permitted to operate in an entire province; this is a positive development for foreign investors as previously FIICs were required to establish branches on a city-by-city basis.
Attached is our translation of the "Administrative Regulations on Insurance Companies" and the "Implementing Rules on the Regulations of the People's Republic of China for the Administration of Foreign-Invested Insurance Companies."